Internal Ratings Based Approach for calculating credit risk

Approach for calculating own funds requirements for credit risk, in which the risk weights of the loans are based on the bank’s own solvency ratings. The foundation IRB approach is talked about, if the probabilities of default by rating class and borrowers are calculated by the credit institution, but all other risk parameters are stipulated in the CRR. If the institution is also allowed to take into account other risk parameters which are determined internally by the institution – namely the loss given default (LGD), a maturity rating or collateral, then the approach is known as an advanced Internal Ratings Based Approach. Both approaches are subject to approval.