Abstract
The Basel Committee on Banking Supervision is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten countries in 1975. Up to 2009 it consisted of senior representatives of bank supervisory authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The membership of the Basel Committee on Banking Supervision was broadened in June 2009. The new members are representatives from the G20 countries that were not in the Basel Committee before. These are Argentina, Indonesia, Saudi Arabia, South Africa and Turkey. In addition, Hong Kong SAR and Singapore had also been invited to become BCBS members.
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Notes
- 1.
The Basel Committee on Banking Supervision is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten countries in 1975. Up to 2009 it consisted of senior representatives of bank supervisory authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The membership of the Basel Committee on Banking Supervision was broadened in June 2009. The new members are representatives from the G20 countries that were not in the Basel Committee before. These are Argentina, Indonesia, Saudi Arabia, South Africa and Turkey. In addition, Hong Kong SAR and Singapore had also been invited to become BCBS members.
- 2.
see Basel Committee on Banking Supervision (1988).
- 3.
What constitutes credit default is a matter of definition. For banks, this tends to be the occurrence of an individual value adjustment, whereas at rating agencies, it is insolvency or evident payment difficulties. The IRBA included in the new Basel Capital Accord is based on an established definition of default. Compared with individual value adjustments, the Basel definition of default provides for a forward-looking and therefore relatively early warning of default together with a retrospective flagging of payments that are 90 days overdue.
- 4.
Fritz et al. (2002).
- 5.
See BCBS newsletter No 6, “for example, some portfolios historically have experienced low numbers of defaults and are generally – but not always – considered to be low-risk (e.g. portfolios of exposures to sovereigns, banks, insurance companies or highly rated corporate borrowers)”.
- 6.
The Validation Subgroup is focusing primarily on the IRB approach, although the principles should also apply to validation of advanced measurement approaches for operational risk. A separate Subgroup has been established to explore issues related to operational risk (see BCBS newsletter No 4.).
- 7.
An indication of this attitude, which is widespread in Germany, is, for example, the approach that is adopted to the obligation laid down in Section 325 of the German Commercial Code for corporations to publish their annual accounts. No more than 10% of the enterprises concerned fulfil this statutory obligation.
- 8.
Moody’s RiskCalc (Falkenstein et al. 2000) provides one way of processing non-monotonous risk factors by appropriate transformation in linear models. Another one can be found in Chap. 2.
- 9.
The normal transformation of qualitative information like family status, gender, etc into numerical variables for the assessment of consumer loans would not replace such a qualitative oversight.
- 10.
There are different interpretations among different supervisors on this issue.
- 11.
Beside the fact, that an application of the law of large numbers would require that defaults are uncorrelated, there is another subtle violation in the prerequisites for applying the law of large numbers. It is required that the defaults stem from the same distribution. This requirement cannot be seen to be fulfilled for different borrowers. To give a picture: The difference for the task of determining the probability of throwing a six is like approximating this probability either by throwing the same dice 1,000 times and calculating the ratio of sixes to the total number of throws or throwing 1,000 dices once and calculating the ratio of sixes to the number of dices thrown.
- 12.
We believe that validation of rating systems, i.e. the calibration of PDs is almost impossible without the grouping of borrowers to grades with the same risk profile; which is also one of the key requirements of Basel II.
- 13.
- 14.
In the Basel Committee’s new proposals in respect of the IRB approach, small enterprises may, for regulatory purposes, be treated as retail customers and, unlike large corporate customers, small and medium-sized enterprises are given a reduced risk weighting in line with their turnover.
- 15.
We thus concur with the Basel Committee on Banking Supervision.
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Blochwitz, S., Hohl, S. (2011). Validation of Banks’ Internal Rating Systems: A Supervisory Perspective. In: Engelmann, B., Rauhmeier, R. (eds) The Basel II Risk Parameters. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-16114-8_12
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