The Research On The Internal Ratings Based Approach Of The New Basel Capital Accord

The New Basel Capital Accord is a completely new capital framework of which one of the greatest innovation is the Internal Ratings-Based Approach (IRB) that is designed to calculate capital requirement for credit risk. The IRB approach require bank to calculate capital requirement on condition that the bank can meet some minimum requirements. The calculation contains three steps: firstly, bank should divide assets into different exposures according to different potential risk characters; secondly, bank can use internal ratings system and risk management model to evaluate risk elements that include probability of default, loss given default, maturity and exposures; thirdly, bank should input these results into the risk weight functions that are provided by Basel committee and obtain the capital requirement.Basel committee hoped that the capital requirement with more sensitivity could restrict bank's behavior and induce bank to improve risk management, and finally the entire banking system would be safeness and stability. During the designing procedure, Basel committee studied lots of modem credit risk models that were developed by international banking in recent years, and adopt the same idea which include utilizing VaR for calculating capital requirement and take asset portfolios into account about dealing with credit risk. Furthermore, these models were broadly used in the deduction of risk weight functions and maturity adjustment factors, granularity adjustment, and the evaluation of risk elements. At the same time, IRB approach has some problems that need to resolve, which include the complexity of IRB approach, the influence to bank's actual holding capital, the influence of double framework to banking system's stability and reinforcing procyclicality effect.Banking is a risky industry, so its core competition ability is the risk evaluation and management. As the summarization of advanced experience of international banking about risk management, IRB approach provides guidance to china's banking about how to strengthen risk management. China's commercial bank can know about the idea and technique of risk management of international advanced bank, which will help china's banking transform management notion and consolidate risk management consciousness. China's banking can directly conform to the application requirement of IRB approach on the base of china's actual environment in order to construct internal rating system and develop risk management model that is compatible to china's financial situation, which will help china's banking save resource and realize quickly development.