The Application Of IRB In Banking Risk Management

Since the New Basel Accord was issued in 2004, the global banking industry has paid more attention to risk management and deeply understood how to use Internal Rating-based(IRB) Approaches to prevent banking risk. This paper introduces basic idea and framework of the IRB and focuses on the core technology of this method, such as Probability of default(PD), Loss given default(LGD) and Exposure at default(EAD). Based on actual status of banking risk management in China, the paper suggests the application of IRB in banking risk management, including the Management of Credit Awarding, Loan Approved Management, Pricing of Loan Risk and Limit Management of Credit Risk. We hope to transfer the abstruse mathematics models into the operation guides for practice, promote the application of IRB in banking risk management, and assist the development of risk management in China banking industry.