Foundation Internal Ratings Based Basel II

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Basel defines two approaches (Foundation and Advanced) to using Internal Ratings for Regulatory calculations.

Although many firms commence by using the Foundation approach it intends to move to the Advanced approach therefore data to satisfy both approaches has been defined.

The Accord stipulates additional Public Disclosure reporting that define the The IRB Foundation Approach is the basic method by which a Bank may use its Internal Ratings as the basis for calculating Regulatory Capital.

The key principle of the Approach is that a Bank must maintain an Internal Rating system and use it to grade each obligor (or group of obligors) by the Probability of Default.Firms will use a number of Risk Grading systems for different types of obligor. extent and nature of the firms Credit Risk and provide details of credit risk processes.

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