International Finance and Accounting Handbook

ized Model, (2) The Internal Ratings-Based (IRB) Foundation Approach, and (3) The
Advanced IRB Approach. In the Standardized Model, credit risk weights are deter-
mined using external ratings assigned by independent credit rating agencies. For
commercial loans, there are four risk buckets (plus an unrated classification) corre-
sponding to prespecified corporate credit ratings.
The IRB approaches require banks to formulate their own internal ratings models
in order to classify the credit risk of their activities. The Foundation Approach re-
quires that the bank estimate only the probability of default (PD) and the exposure at
default (EAD). There are two additional parameter estimates required to implement
the Advanced Approach: the loss given default (LGD) and the maturity (M). BIS II
requires supervisors to validate the internal models developed by the banks, in con-
junction with enhanced disclosure requirements that reveal more detailed credit risk
information to the market.

APPENDIX A: MAPPING OF S&P, MOODY’S, AND FITCH IBCA
RATINGS

Exhibits 3A.1 through 3A.5 use Standard & Poor’s credit ratings in order to derive
the risk weights under the Standardized Approach. Exhibit 3A.1 shows how Standard
& Poor’s ratings can be mapped onto comparable Moody’s and Fitch IBCA ratings.

3 • 18 BIS BASEL INTERNATIONAL BANK CAPITAL ACCORDS

Standard & Poor’s Moody’s Fitch IBCA

Credit Rating Credit Rating Credit Rating

AAA Aaa AAA

AA+ Aa1 AA+

AA Aa2 AA

AA– Aa3 AA–

A+ A1 A+

AA2A

A– A3 A–

BBB+ Baa1 BBB+

BBB Baa2 BBB

BBB– Baa3 BBB–

BB+ Ba1 BB+

BB Ba2 BB

BB– Ba3 BB–

B+ B1 B+

BB2B

B– B3 B–

CCC+ Caa1 CCC+

CCC Caa2 CCC

CCC– Caa3 CCC–

CC Ca CC

CCC

DD

Source:BIS (April 30, 2001)

Exhibit 3A.1 Mapping of Standard & Poor’s, Moody’s, and Fitch IBCA Credit Ratings