ADVANCED INTERNAL RATING-BASED - AIRB
A kind of approach which requests that the calculation of all risks components will be done internally within the premise of the financial institution. The advance internal rating-based (AIRB) approach contributes to the reduction of the credit risk and capital requirements.
Aside from the estimations coming from the basic internal rating-based (IRB) approach, the AIRB approach permits the banks to brainstorm the risk components among themselves, such as exposure at default (EAD) and loss given default (LGD). Supervisory authorities usually conduction the estimation of these.
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