Study On Internal Ratings-Based Approach In The Bank Of China

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 is to allow banks measure their credit risk by using their internal historical data.The banks with advanced technique of risk management will benefit from using the IRB approach by managing much as set with the same amount of capital. The contents of the IRB approach include categorization of banking-book exposures, estimating risk components like PD, LGD, EAD and M for each kind of assets, calculating the capital requirement of the credit risk of banking-book exposures. 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.With thedevelopment of the openness of the banks in our country and the publication of state-owned commercial banks, the commercial banks of our country need to catch up with the international advanced banks on the credit risks management.The internal rating system has not been established in the commercial banks of our banks yet. Even the "five-degree classification" system is far from enough, compare with the IRB in The New Basle Capital Accord. The New Basle Capital Accord is considered as the"game rules" among the worldwide banking buiness.It's very influence not only to the banking business in the "ten-nation group" but also to the ones in other countries.It helps to make the Banking business competing openly and equally worldwide.So, if we want to participate the competition among the banking business world widely, we have to obey the general-accepted "game rules".Thus, the emergencial work we have to do now is the establish our own credit risks internal rating system after the joining of the WTO.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 bankingcan 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. This paper consists of four parts. First part describes the theoretical basis of the IRB approach Based on the first part, second part analyzes the credit risk measurement models of foreign banks, and summarizes the good experience of their credit risk management under the IRB approach. Third part analyzes the main difficulties of our commercial banks and the last part discusses how to solves these difficulties. From the perspective of IRB approach, the paper suggests Chinese banks to build the credit risk management frame with Chinese reality and gives some advices how to establish our own credit risks internal rating system.