BCB Issues Rules on IRB Approaches for Credit Risk and ICAAP
The Central Bank of Brazil (BCB) published a rule on the calculation of capital requirements under the internal ratings-based (IRB) approach for credit risk, along with a rule that amends circulars on the Internal Capital Adequacy Assessment Process (ICAAP) and Simplified ICAAP related to operational risk.
BCB published Resolution No. 303, of March 16, 2023, that establishes the procedures for calculating the portion of risk-weighted assets (RWA) referring to exposures to credit risk subject to the calculation of the capital requirement through internal credit risk classification systems (IRB approaches) authorized by the Central Bank. The BCB Resolution introduces floors for some parameters, reduces the set of portfolios eligible for the approaches and brings several improvements. It is expected that the new framework of IRB approaches will be more robust and limit the variability of capital requirements among the institutions that eventually adopt them. The Resolution is aimed at financial institutions classified in Segment 1 (S1) and Segment 2 (S2), in accordance with the definitions of CMN Resolution No. 4,553, of January 30, 2017, and BCB Resolution No. 197, of March 11, 2022. The BCB Resolution is in line with the best practice recommendations of the Basel Committee on Banking Supervision (BCBS) included in the set of recommendations known as “Basel III” and will replace BCB Circular No. 3648, of March 04, 2013, as of July 01, 2023.
BCB published Resolution No. 306, of March 23, 2023, that amends BCB circulars and resolutions that provide for the Internal Capital Adequacy Assessment Process (ICAAP) and the Simplified Internal Capital Adequacy Assessment Process, on the operational risk database, on the disclosure of the Pillar 3 Report, on the Report on Social, Environmental and Climate Risks and Opportunities (GRSAC Report), on criteria for classifying instruments in the trading book or in the banking portfolio, on the governance requirements related to the trading desks where instruments subject to market risk are managed, on the requirements for the recognition of internal transfers of risk and on the risk management structure, the risk management structure capital and information disclosure policy of a prudential conglomerate classified as Type 3.
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Keywords: Americas, Brazil, Banking, Basel, Regulatory Capital, IRB Approach, Credit Risk, ICAAP, Operational Risk, Pillar 3, Governance, ESG, Climate Change Risk, Market Risk, BCB
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