A bank, as now, assigns risk weights to its assets and offbalance-sheet positions and then sums the risk-weighted asset values. The total capital requirement per dollar of risk-weighted assets remains at 8 percent. The primary difference from the current accord is that risk weights would be based on borrowers' external credit ratings, when available.
The proposal would also give more recognition to a bank's efforts to mitigate risk through guarantees, collateral, credit derivatives, and netting agreements. The centerpiece of the proposal is clearly the internal ratings based (or "IRB") approach, under which the regulatory capital requirement would be based on a bank's own internal assessment of each borrower's credit quality.