Equity RWA Credit Risk

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Hi, David,
Hope everything is going well for you,
I have a question on basel II rules.
Calculating the credit risk RWA for the equity (asset class):

• Standardized Approach requires 100% Risk Weight according to the BIPRU 3.4.47
• Simple IRB requires 190%, 290% or 370% for different types of equities according to the BIPRU 4.7.9

1. Could you give an example of calculating RWA for equity in the denominator of the 8% ratio using these 2 approaches above? (the ratio which is in the image here http://www.bionicturtle.com/how-to/article/basel_approaches_to_credit_risk)
2. Why would IRB require to hold more capital? It sounds counter-intuitive... Banks aim to qualify for IRB to reduce the capital held against risks.
3. Why the BIPRU 4.7.12 outlines the Expected Loss for the equity? How is it used for calculating the RWA for equity?
Many thanks
Indira

 

[David Harper CFA FRM]

Hi Indira - I will bookmark your compound question: sorry the content schedule is brutal, I will be working around the clock (all weekend etc) to get the study notes out per the new T6 readings, so I just don't have spare time to conduct the research required by your compound question, partly because it references BIPRU so I have to look that up to ascertain variances, if any, i do find your question (2) interesting/provocative . I'll be on the forum, as usual, for specific interaction questions w.r.t our content, but yours takes more time than that. Thanks for understanding,