In recent joint research titled ‘Consistency in Risk Weights for Corporate Exposures Under the Standardized Approach‘, the Bank Policy Institute and Credit Benchmark show that using internal ratings in the revised standardized approach for corporate exposures would lead to a limited systematic variation in risk weights.
The article explains “In December 2017, the Basel Committee published the final elements of the revised Basel III capital framework, which included important enhancements to the risk sensitivity of the standardized approach… We show that using banks’ own internal ratings to distinguish between investment-grade and non-investment-grade obligors without the securities-listing requirement would significantly expand and enhance the risk sensitivity of the standardized approach for corporate entities. It would also result in little variation in risk weights across banks for the same entity”.
View original article (external link).
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