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Basel Committee Proposes Constraints on Use of Internal Model Approaches
6 April 2016
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On March 24, 2016, the Basel Committee on Banking Supervision published a consultation on “Reducing variation in credit risk-weighted assets – constraints on the use of internal model approaches.”
The consultation includes proposals to: (1) remove the availability of internal models to estimate capital requirements for certain large corporate and financial institution exposures; (2) adopt exposure-level and model-level parameter floors for banks’ internal models; and (3) narrow the range of acceptable internal model parameter estimation practices.
If adopted as proposed, the consultation could result in higher capital requirements for large banks, with banks located outside of the United States bearing a large share of the burden.
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