Capital Relief through Optimized Use of the IRBA under CRR III
Strategies for capital optimization through targeted IRBA usage under CRR III – Output Floor, Partial Use, and their implications for capital planning.
Authors: Prof. Dr. Dirk Schieborn, Manfred Puckhaber
Journal: die bank
Reference: die bank 06/2023
Year of publication: 2023
Abstract
The planned revision of the Capital Requirements Regulation (CRR III) introduces significant changes to both the Standardised Approach (SA) and the Internal Ratings-Based Approach (IRBA) for credit risk. A key innovation is the introduction of an Output Floor, which limits the previously achievable capital relief from the IRBA relative to the SA.
The article analyses the interactions of these new rules and demonstrates how institutions can improve their capital position despite the Output Floor through targeted, optimised use of the IRBA – for example via selective portfolio coverage and a prioritised rollout sequence.
Key Topics
- Overview of the CRR III amendments to credit risk
- Mechanism and effect of the Output Floor
- Strategies for optimised Partial Use implementation
- Quantitative analysis of achievable capital relief
- Recommendations for SA and IRBA institutions