Partial Use of the IRBA

The technical article analyses the regulatory and economic implications of partial use of the Internal Ratings-Based Approach (IRBA) for capital calculation at banks. The IRBA allows institutions to use internal risk estimates for calculating regulatory capital requirements — but also places considerable demands on model quality and governance.

On the basis of empirical data, optimisation strategies for partial IRBA approval are developed and evaluated. The authors show which portfolios and rating systems are particularly suitable for IRBA approval and which regulatory aspects need to be considered.