SS4/24 – Credit risk internal ratings based approach

Key Points

This supervisory statement sets out the Prudential Regulation Authority's expectations for the application of the Internal Ratings-Based (IRB) approach in calculating credit risk risk-weighted assets. It provides explanations on assessing whether firms meet these requirements, including the conservatism applied.

The statement is relevant to PRA-authorised banks, building societies, investment firms, and financial holding companies. It has 21 chapters that cover various aspects of the IRB approach, such as permission to use it, partial use, qualifying revolving retail exposures, rating systems, data representativeness, model deficiencies, and stress tests.

The statement emphasizes the importance of conservatism in credit risk assessment and provides guidance on how firms can demonstrate this in their applications. It also highlights the need for regular review and validation of estimates to ensure they remain accurate and effective.