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The One-Factor CreditMetrics Model In The New Basel Capital Accord
Jan 1, 2010
The New Basel Capital Accord of January 2001 has received considerable attention for making required regulatory capital more sensitive to credit quality. Though the Accord did not allow for full internal modeling of credit risk, it does utilize a simple portfolio model to calibrate the mapping from credit quality to capital, signaling an awareness of the impact of portfolio effects on credit risk. We review the simple model and its application to the capital calibration. We also discuss a potential further application to retail credit portfolios and examine the allocation of add-on capital deriving from the granularity charge.
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