The Centralized Ratings Based Approach (CRBA): An Alternative to the Basel Standard Approach in Developing Countries

30 Pages Posted: 2 Aug 2013

See all articles by Rodrigo Gonzalez

Rodrigo Gonzalez

Banco Central do Brasil; Bank of International Settlements

Date Written: August 1, 2013

Abstract

This paper proposes a framework to calculate Minimum Capital Requirements (MCR) for credit risk relying only on information available on Credit Registers. The Centralized Ratings Based Approach (CRBA) is devised to be used by small and medium-sized banks in countries that are still following Basel I or the Simplified Standard Approach (SSA) of Basel II. It is based on the frequency of defaults calculated with banks' credit exposures reported monthly to Credit Registers. Data comprises of over 340,000 loans sorted from the Brazilian Credit Register (SCR). First, we use Creditrisk+ to estimate economic capital. Second, we estimate MCR under the SSA, IRB and CRBA. Third, we compare these Approaches on the basis of ex-post portfolio losses under normal and stressed conditions using Monte Carlo simulation. The results show that the CRBA could be a viable alternative to the SSA, minimizing bailout costs, improving banks' survival rate and demanding less MCR.

Keywords: credit risk, Basel, capital requirements, Standard Approach, IRB

JEL Classification: G38

Suggested Citation

Gonzalez, Rodrigo, The Centralized Ratings Based Approach (CRBA): An Alternative to the Basel Standard Approach in Developing Countries (August 1, 2013). Available at SSRN: https://ssrn.com/abstract=2304965 or http://dx.doi.org/10.2139/ssrn.2304965

Rodrigo Gonzalez (Contact Author)

Banco Central do Brasil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

Bank of International Settlements ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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