Standardized approach
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According to International Convergence of Capital Measurement and Capital Standards, known as Basel II, the term "Standardized Approach" refers to a set of risk measurement techniques for banking institutions. The term may be used in the context of Credit Risk or Operational Risk.
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[edit] Standardized Approach for Credit Risk
The Basel Accord proposes to permit banks a choice between two broad methodologies for calculating their capital requirements for credit risk. One alternative is to measure credit risk in a standardised manner, supported by external credit assessments. The other alternative is based on internal ratings.
The approach supported by external credit assessment is known as Standardized Approach (Credit Risk).
[edit] Standardized Approach for Operational Risk
In the Standardised Approach (Operational Risk), banks’ activities are divided into eight business lines: corporate finance, trading & sales, retail banking, commercial banking, payment & settlement, agency services, asset management, and retail brokerage. Capital for operational risk for each of these lines is a percentage of the bank's gross income from that particular line of business.
[edit] See also
- Foundation IRB
- Advanced IRB
- Basic approach
- Advanced Measurement Approach
- Basel II
- Basel Accord
[edit] References
- http://www.bis.org/publ/bcbsca.htm Basel II: Revised international capital framework (BCBS)
- http://www.bis.org/publ/bcbs107.htm Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework (BCBS)
- http://www.bis.org/publ/bcbs118.htm Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework (BCBS) (November 2005 Revision)
- http://www.bis.org/publ/bcbs128.pdf Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework, Comprehensive Version (BCBS) (June 2006 Revision)
