Response to BCBS Consultation on Revised Credit Risk SA

Full response available on the BIS website or click here for the pdf.

This document provides comments on BCBS 307 which describes the Basel Committee’s proposals for a revised credit risk Standardised Approach (SA). Under the revised SA, the risk weights for exposures to banks, corporates and commercial and residential mortgages depend on risk indicators. Agency ratings which, when available, are the basis for corporate- and bank-exposure risk weights in the current SA would instead depend on these risk indicators.

While we see arguments in favour of reducing reliance on agency ratings in regulations and in increasing the risk sensitivity of the SA for exposures that are not rated, we are dubious that the proposed calibration, as it currently stands, represents a significant improvement on the current SA. We plan to investigate these issues of calibration in coming months but, in the meantime, we here provide some general comments and illustrative benchmarking exercises that underline contentious aspects of the current proposals.