It is critical that banks’ risk exposures are backed by a high quality capital base. But the global financial crisis showed that this was not the case. As a result, significant revisions were made to the Basel capital framework as part of the Basel III reforms.

This tutorial describes the two Basel approaches that banks can use to calculate risk-weighted assets (RWAs) for credit risk – Standardized Approach (SA) and Internal Ratings-Based (IRB) approach. The tutorial also discusses the key changes implemented by Basel III in relation to RWA calculations and outlines some of the ongoing issues surrounding RWAs. In addition, the definition of qualifying capital and the associated calculations are described in detail.

On completion of this tutorial, you will be able to:
- Describe the process of calculating risk-weighted assets (RWAs) under both the Standardized Approach (SA) and the Internal Ratings-Based (IRB) approach
- Outline the impact of Basel III on credit risk capital calculations, in particular the amendments relating to capital ratios and qualifying capital

Topic 1: Standardized Approach
Topic 2: Internal Ratings-Based (IRB) Approach
Topic 3: Basel III & RWAs
Topic 4: Qualifying Capital