April 2016
Last week, the Basel Committee on Banking Supervision (Basel) proposed floors and other constraints on the use of internal models for calculating credit risk capital. The proposal aims to reduce complexity and model-driven variation in the calculation of regulatory capital among banking institutions, thus improving comparability. To that end, the proposal generally discourages (and in some instances prohibits) the use of internal ratings-based (IRB) approaches in calculating risk weighted assets related to credit risk.