The Basel Committee on Banking Supervision (BCBS) on December 10th issued the second iteration of its proposed revisions to the standardized approach (SA) for credit risk measurement. The revised SA is intended to achieve a better balance between risk sensitivity, simplicity, and comparability than the currently applicable SA. The revisions also serve as an alternative to the use of internal models for calculating regulatory capital.
The latest proposal includes significant changes from last year’s version in response to BCBS’s quantitative impact study and industry comments. However, more work needs to be done, e.g., agreeing on an implementation timeline and carrying out an additional QIS, suggesting finalization will take at least another year.
This First take elaborates on these key points.