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Revised partial use: Banking supervision on the right track

Author

Listed:
  • Neisen, Martin

    (PricewaterhouseCoopers, Germany)

  • Schulte-Mattler, Hermann

    (Professor of Finance, Dortmund University of Applied Sciences, Germany)

Abstract

The new partial use philosophy of the European Banking Authority (EBA) could be the first step towards revitalising the internal ratings-based approach (IRBA) in the area of credit risk. Banks currently using or that wish to use the IRBA will benefit from the greater flexibility and foreseen cost reductions. As part of the Basel III finalising postcrisis reforms document — often referred to as Basel IV — the Basel Committee on Banking Supervision (BCBS) fundamentally changes the requirements on the parallel use of the IRBA and the standardised approach for credit risk and gives banks much more flexibility in the adequate application of both approaches. The EBA supports this change in a paper on the implementation of Basel IV, published in August 2019 (EBA-Op-2019-09a). The new supervisory view of the partial use could be the first step towards reviving the IRBA. It will bring about a sustained improvement in banks’ risk management in the important area of credit risk, as more risk-sensitive estimation methods are used.

Suggested Citation

  • Neisen, Martin & Schulte-Mattler, Hermann, 2019. "Revised partial use: Banking supervision on the right track," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 13(1), pages 70-80, December.
    • Handle: RePEc:aza:rmfi00:y:2019:v:13:i:1:p:70-80
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    More about this item

    Keywords

    Basel III finalising document; Basel IV framework; credit risk; internal ratings-based approach; CRR; standardised approach;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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