Standardized approach
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According to International Convergence of Capital Measurement and Capital Standards, known as Basel II, the standardized approach is 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
[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)
