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ERM frameworks [16]

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Bullet points include: Basel I – calculation of credit risk capital requirement was very crude. Essentially, just three risk weighted groups. Governments – lowest risk-weighted factor (often zero). Regulated banks. Everything else – highest risk-weighted factor, same for all corporate loans irrespective of credit rating. Basel II (in banking book) – banks allowed to choose between. Standardised formulae (using credit rating agencies’ ratings), and IRB (internal-ratings-based) approaches

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