The Application Study About The Internal Rating-Based Approach In Our Commercial Bank

The Basel Committee on Banking Supervision released the Basel Capital Accord in 1988, whose core is capital regulatory. In 2001, The Basel Committee released the New Basel Capital Accord, which substituted the three pillars-"minimum capital requirement, supervisory review process and market discipline" for the single pillar of minimum capital requirement. The first pillar is the most important part among the three pillars, while the IRB approach is the core of the first pillar, and it is also the core of New Basel Capital Accord.In 2013, all the big commercial banks in China will implement the New Basel Capital Accord, for whom, constructing the effective banking internal rating system and suitable credit risk model is urgent, and meanwhile, the effects bringing to the capital adequacy is important. On this background, this paper firstly introduces the theory about IRB Approach, and then makes suggestions about banking internal rating system based on the assumption of IRB model. Secondly, introduces the present situation of banking internal rating system in China, and compares the IRB approach and multi-level classification approach and makes strategies. Thirdly, discusses the effects to the bank capital adequacy if the IRB approach is implemented. After close examining the situations of China banking industry and China economy, we find that in the long run, transition from current capital accord into IRB regime doesn't give rise to increase in capital requirement. Finally, compares the famous credit risk models, the KMV model is adopted to estimate the PD, and the demonstration about the validity of KMV model in China stock market is conducted through selecting typical stock samples. Then we also introduce the models of estimating the PD of SME.