Advanced Internal Rating-Based - AIRB

AAA

DEFINITION of 'Advanced Internal Rating-Based - AIRB'

An approach that requests that all risk components be calculated internally within a financial institution. The advanced internal rating-based (AIRB) approach helps an institution reduce its capital requirements and credit risk.

In addition to the basic internal rating-based (IRB) approach estimations, the AIRB approach allows banks to estimate more risk components themselves, such as loss given default (LGD) and exposure at default (EAD). These would normally be estimated by supervisory authorities.

INVESTOPEDIA EXPLAINS 'Advanced Internal Rating-Based - AIRB'

Implementing the AIRB approach is one step in the process to becoming a Basel II-compliant institution; however, an institution may implement the AIRB approach only if they comply with certain supervisory standards set forth in the Basel II accord.

RELATED TERMS
  1. Bank For International Settlements ...

    An international organization fostering the cooperation of central ...
  2. Tier 1 Capital

    A term used to describe the capital adequacy of a bank. Tier ...
  3. Tier 2 Capital

    One of two categories by which a bank's capital is divided. Tier ...
  4. Risk

    The chance that an investment's actual return will be different ...
  5. Basel Committee On Bank Supervision

    A committee established by the central bank governors of the ...
  6. Capital Requirement

    The standardized requirements in place for banks and other depository ...
Related Articles
  1. Investing Basics

    Looking Deeper Into Capital Allocation ...

  2. Options & Futures

    What Is Your Risk Tolerance?

  3. Personal Finance

    How Basel 1 Affected Banks

  4. Insurance

    Basel II Accord To Guard Against Financial ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center