2  BIS Review 22/2001  Those changes may be attractive to many institutions; however, the clear focus of the new Basel proposal is the basing of regulatory capital requirements on a bank's own internal credit ratings, the so-called internal rating based or IRB approach. There are two variants of the IRB approach: the "foundation" and "advanced" options.
Both were designed for banks with the resources and expertise to build and maintain sophisticated risk-management systems and for which the current capital standard more seriously mismeasures risk. The difference between the two IRB methods is that the foundation approach is designed for banks with systems that do not permit full reliance on internal risk estimates for calculating capital requirements.