BIS paper offers insight into the IRB use test

Principles have been set out by the Basel Committee on Banking Supervision (BCBS) to help banks and supervisors interpret the requirements for the internal ratings-based (IRB) use test.

The principles state that:

• Banks are responsible for demonstrating their compliance with the use test.

• Internal use of IRB components should be sufficiently material to result in continuous pressure on the quality of IRB components.

• Demonstrating consistency and explaining differences between IRB components

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