Regulatory consistency assessment programme (RCAP) - Analysis of risk-weighted assets for credit risk in the banking book

April 2016

This report is the second by the Basel Committee to analyse variation in risk-weighted assets (RWA) in banks using internal ratings-based models to calculate credit risk capital requirements. The study evaluates two types of risk estimates. First, it considers those risk estimates used for exposures to retail customers and small and medium-sized enterprises. Second, it explores the way banks evaluate the likely exposure at default across all asset classes.

This report is part of the Committee's wider Regulatory Consistency Assessment Programme (RCAP), which is intended to ensure consistent implementation of the Basel III framework.  Its analysis of regulatory outcomes complements other reports by the Committee on variation in RWA for market risk and counterparty credit risk, as well as an earlier report on RWA variation for credit risk published in July 2013.

During this study, the Committee observed different practices in the way that banks ensure independent evaluation of credit risk models used to calculate capital requirements.  The report describes sound practices observed in banks' independent model validation functions, including the governance of the validation process, the methodology and scope of banks' validation functions and the role of the validation function across different phases of model development and implementation.