The committee’s revisions to pillar I are aimed at developing minimum capital standards that more accurately distinguish degrees of credit risk and that are appropriate for banks of varying levels of sophistication.
In its consultative document issued last June, the committee set out two possible approaches: a standardized approach that would tie capital requirements to external credit assessments, such as credit ratings, and another approach that would be based on a bank’s own internal ratings. The latter would derive a capital requirement from bank estimates of default probabilities and from estimated losses-given-default on individual exposures.