Fisher Investments on Financials

Appendix C

Risk-Adjusted Balance Sheet

Basel offers three approaches to calculating risk-adjusted assets: an internal ratings approach (in which each bank will use its own calculations and assumptions), the Standardized approach and the Simplified Standardized Approach, which offers the simplest options for calculating risk-weighted assets. The Standardized approach, the most commonly used, uses external credit assessments from agencies such as Standard and Poor’s. Table C.1 provides a general overview of various weighting schemes under the standardized risk weighting approach as of June 2011. Tables C.2 and C.3 provide the associated weighting schemes for sovereigns, banks and corporates.

Table C.1 Standardized Risk Weighting Approach

Source: BIS http://www.bis.org/publ/bcbsca04.pdf (July 2011)

Risk Adjustments for Claims on. . .	Standardized
Sovereigns and central banks	0–150% based on external credit assessment (See Table C.2.)
Other official entities	Select entities receive 0%, others treated as banks
Banks and securities firms	Either 1 notch lower than sovereign risk or based on external assessment of the bank (See Table C.2.)
Corporates	20–100% based on external credit assessment (See Table C.3.)
Retail portfolios	75%
Residential property	35%
Commercial property	100%
Past-due loans	100–150% based on level of provisions and type
Higher risk categories	150%
Off-balance sheet items	Equivalent to credit exposure or range 0–100%
Other assets	100%