Banks that model their own credit risk capital requirements are being squeezed on both sides. Supervisors want them to work harder, while the rewards available – in terms of capital relief relative to the cruder standardised approach – are shrinking.
This is a problem not only for banks but also for European regulators who fought to save the internal ratings-based approach from their sceptical peers. As a result, a new attitude is starting to emerge on both sides of the divide. Instead of a