IBR (Internal Ratings-Based)
Corporate Credit Analysis glossary · Corporate Credit Analysis
Definition
A Basel framework approach allowing banks to use their own PD, LGD, and EAD estimates for regulatory capital, subject to supervisory approval. Distinct from the standardised approach which applies regulator-set risk weights.
IBR (Internal Ratings-Based) in plain English
Banks are required by regulators to hold a safety cushion of their own money against the loans they make, in case borrowers don't repay. The Internal Ratings-Based approach lets a bank use its own homegrown estimates of risk — how likely a borrower is to default (PD), how much it would lose if they did (LGD), and how much would be owed at that moment (EAD) — to calculate that cushion, instead of using one-size-fits-all numbers the regulator hands out (the "standardised" approach). It's like a careful driver being allowed to set their own insurance premium using their real driving record, rather than paying the flat rate everyone with their car model pays — but only after the insurer inspects and approves their math.
Also called: Internal Ratings-Based
Learn these first
Related Corporate Credit Analysis terms
Corporate Credit Analysis practice questions · Corporate Credit Analysis flashcards · Corporate Credit Analysis study guide