Australian banks heading for advanced IRB

The major challenge, said Gunning, is to develop databases for commercial exposures, such as mortgage assets and corporate loans, which will require a firm commitment, both in terms of funding and resources, by the four banks – ANZ, Commonwealth Bank of Australia, National Australia Bank, and Westpac.

The IRB approach will allow sophisticated banks meeting stringent regulatory criteria to calculate their own risk capital weights. Under the advanced model, banks will be able to use probability of default and loss-given default data derived from their own internal models – so long as the banks have sufficient credit history.