We have reviewed the details of another key section of the final Basel Accord: changes to the internal-ratings based (IRB) approach and a new output floor designed to limit reliance on models. Combined with the revised standardized approach (SA) we assessed earlier for you, the IRB framework provides a still more favorable regime for residential-mortgage finance. That said and as before with the SA, the U.S. has to want to do what Basel says – nothing in the new standards forces the U.S. either to walk away from the IRB, as it may well do, or make mortgage capital any easier (which it won’t).
The full report is available to subscription clients. To find out how you can sign up for the service, click here.