Lean IRB Approaches and Transition Design: The Basel Ii Proposal

37 Pages Posted: 19 Nov 2001

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Uwe Wehrspohn

Wehrspohn GmbH & Co. KG; University of Wuerzburg

Date Written: October 2001

Abstract

The internal ratings based approach (IRB) of the Basel Committee has three problems: few incentives for banks to adopt the IRB approach, a complicated technical framework and very conservative aggregation rules. We suggest the following remedies: First, we suggest a new design of transition rules that produce strong incentives for banks to adopt the IRB approach. Second, we outline a lean IRB approach which is simpler and avoids adjustments and caps that are difficult to justify. This approach can be flexibly calibrated to proxy any IRB approach. Third, we suggest a simple aggregation rule for capital requirements across portfolio segments that takes the diversification effect across segments into account.

Keywords: Basel II, lean IRB-approaches, credit portfolio risk, transition design, banking

JEL Classification: D81, D82, G11, G21, G28

Suggested Citation

Gersbach, Hans and Wehrspohn, Uwe, Lean IRB Approaches and Transition Design: The Basel Ii Proposal (October 2001). Available at SSRN: https://ssrn.com/abstract=290700 or http://dx.doi.org/10.2139/ssrn.290700

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Uwe Wehrspohn

Wehrspohn GmbH & Co. KG ( email )

Spiegelstraße 39
Mannheim, D-68305
Germany
+49 (0) 621 764 46 68 (Phone)
+49 (0) 621 764 48 02 (Fax)

HOME PAGE: http://www.wehrspohn.de

University of Wuerzburg ( email )

Josef-Stangl-Platz 2
Wuerzburg, Bavaria 97070
Germany
+49 (0)931 / 350 12 40 (Phone)
+49 (0)931 / 312 95 5 (Fax)

HOME PAGE: http://www.fzrm.uni-wuerzburg.de

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