Internal Ratings Based (IRB) approach: Nearing the end of the road?

The European Banking Authority (EBA), Prudential Regulation Authority (PRA) and Basel Committee on Banking Supervision (BCBS) have been working on extensive Internal Ratings Based (IRB) reform programmes since the Global Financial Crisis with the goal of reducing risk-weighted asset variability, impacting Standardised and IRB firms.

In particular, the primary components of the reforms pertain to Probability of Default (PD) and Loss Given Default (LGD). We invited a number of UK IRB and IRB aspirant firms to participate in an industry survey targeted at benchmarking practices, capabilities and implementation approaches adopted.

As we reach a critical period in many firms’ IRB programmes, with final residential mortgages model regulatory submissions having been made or nearing, PwC UK launched our 2022 IRB benchmarking survey. The survey aimed to understand how firms are implementing key aspects of the revised IRB requirements for UK residential mortgage portfolios and, in particular, how industry practices have evolved over the past year in key areas of divergence relating to Hybrid PD and Margins of Conservatism (MoCs) following on from our 2021 IRB benchmarking survey.

Download our thought leadership paper, ‘IRB Benchmarking – Nearing the end of the road?’, which explores how firms are tackling remaining areas of uncertainty within the wave of recent regulatory changes and how these are ultimately impacting risk-weight outcomes.