Hi David,

Thanks a lot for your thoughts on the CCR. I do agree with most of your thoughts; however also disagree with few of those. I do agree with your point of the committee being late on coming up with the internal models method for CCR guidelines. However, the internal models method (EPE) suggested by the committee provides benefits to the banks to move from Current Exposure Method to EPE because of the following reason:

EPE approach considers simulated Expected Exposures (EE) only up to one year, whereas the add-on in the Current Exposure Method (CEM) considers the entire life of an exposure. So, in most of the cases EPE provides lesser capital requirement than the Current Exposure Method (CEM)

Next point is that the approach suggested by the Basel II considers the simulated values of both exposure as well as collateral, which is sophisticated enough to measure the counterparty credit risk (CCR).

Please provide your thoughts on the above points…