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Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition by Youssef F. Bissada, Jean Dermine

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The standardized approach

The standardized approach is very similar to the original Basel I. Instead of giving an identical weighting of 100% to all loans, the weighting will be related to the riskiness of the transaction, as identified by the rating of external rating agencies. An example is given for corporate loans.[2]

[2] The reader is advised to read the Basel II document for a complete analysis of weighting for different types of transactions.

 AAA – AAA+ – ABBB+ – BBBBB+ – BBBelow BBUnrated
Corporate20%50%100%100%150%100%

For example, a loan to a corporate client rated A+ would be weighted at 50%. This implies that on a loan of $100, the capital charge is calculated as follows:

Capital ≥ 8% × ($100 × 50%) = $4

From the perspective ...

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