Under current international capital standards issued by the Basel Committee of the Bank for International Settlements, certain large banking organizations, with regulatory approval, can use their sophisticated internal risk-based models to determine the risk weight of their assets, called the Internal Ratings-Based Approach. The remaining banking organizations use the Standardized Approach. The standardized risk-based capital calculations as amended over the years are derived from the original risk-based capital standards issued in 1988. In December 2014, the Basel Committee proposed revisions to the Standardized Approach.  After review of the comments, on December 10, 2015, the Basel Committee issued a re-proposal of those changes for comment.

Kathleen A. Scott wrote a recent column in The New York Law Journal that discusses the revised proposed standards as one step by the Basel Committee to improve the consistency and comparability in calculating banks’ risk-based capital ratios.

Read the article: ‘Revised proposed changes to capital requirements’