Basel III credit risk capital requirements calculator under "Internal Ratings Based" approach

Overview

Basel III committee-inspired prudential regulations always include an approach for calculating "risk-weighted assets" relying on the Bank's own statistical estimates (the so-called "Internal Ratings-Based" or "IRB" approach)

According to this "IRB" approach, in all asset classes where losses depend mostly on the creditworthiness of a counterpart, the weighting factor is defined as a function, the main inputs of which are the "Probability of Default" (PD) of the counterpart and the "Loss given Default" (LGD) ratio (Loss to Exposure ratio) of the exposure.

As this regulatory function is somewhat complicated (and most often presented with an ill-adapted notation system) we propose thereafter a calculation tool as a Microsoft Excel spreadsheet.

Scope

This calculator is applicable to all non-defaulted exposures of the following IRB asset classes :

'sovereign' (European Union wording: 'central governments and central banks')
'bank' (European Union wording : 'institution')
'corporate'
'retail'

Strong points

Display of intermediate results
Allows computation of weighting factors only, or of both weighting factors and risk-weighted assets
Allows to select the regulating authority (Basel III Committee or European Union)
Non-applicable cells are automatically filled in grey
Self-described document which may be used without any additional help

Requirements

Microsoft Excel 2003 or later

Download the Basel III IRB Calculator as a MS Excel spreadsheet

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