The latest BIS reforms were announced in December 2017, and are mostly expected to be in place by 2022.
Removal of A-IRB approaches
Corporates with consolidated revenues > €500m, banks and financial institutions will no longer be eligible for A-IRB from 2022, so at a minimum they will have to use standardised LGD estimates for these exposures. These asset classes will be treated using either (1) Foundation IRB (F-IRB) approach (i.e. banks can still use their own PD estimates) or (2) the Standardised approach. The reforms also propose to shift all equity exposure towards the Standardised approach.
Specification of input floors
New minimum parameter estimates will be applied to probability of default (PD), loss given default (LGD) and exposure at default (EAD) estimates.
Adjustments were also made to the supervisory specified parameters including:
Related Developments in Credit Benchmark data
The Credit Benchmark consortium was originally launched to give banks greater insight into credit risk with respect to regulatory requirements. However, the outputs are increasingly being used in a broader set of use cases and there are situations where good risk management needs to go beyond the regulatory requirements. To reflect this, Credit Benchmark typically collect data that reflects pre-regulatory overrides for both PDs and LGDs. The overall aim is to maximise the value of credit risk estimates in maintaining and improving high standards across credit risk management in all of its forms.