SA and IRB(A)
RWA calculation
- CRR III / Basel IV compliant RWA calculation applying both the Standardised and IRB approach
- Output-floor benchmarking for quick estimation of its impact
Core capabilities of RWA SmartCheck
SA and IRB(A)
RWA
optimisation
- Identification of key drivers contributing to RWA for strategic decision making and estimation of potential RWA optimisation
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Drivers include:
- LGD floor & CRM allocation
- Asset classification
- External rating enhancement
Customization and
traceability
- Development of highly customisable impact assessments
- Fully amendable parameters for flexible adaptation to local requirements
- Completely transparent audit-validation traceability
Test cases
generator
- Instant test cases generation of large portfolios, satisfying user-defined characteristics and eliminating the effort of manual test case development
- Easy addition of asset class specific dimensions, for example specialized lending, residential/commercial mortgages and retail transactions
Finalyse RWA SmartCheck
Simulation-driven capital floor optimisation
With the entry into force of CRR III and its requirements, such as the introduction of the RWA Output Floor, financial institutions are required to perform RWA calculation applying the Standardised Approach across the entire portfolio. The demand applies also where IRB models are in place, envisaging a potentially significant impact on the overall capital absorption.
Finalyse RWA SmartCheck supports Bank by performing RWAs calculation aligned with the regulatory framework, applying both the Standardised and IRB approach. The tool performs RWAs calculation and allows to assess RWA optimisation opportunities given its ability to analyse the drivers impacting RWA levels, thus allowing for the implementation of targeted and defensible optimisation action.
Built as an open-source, Python-based solution, RWA SmartCheck integrates smoothly into existing banking systems and data infrastructures. Delivered with expert support for setup, data ingestion, and configuration from Finalyse professionals, it provides a practical and auditable framework for continuous RWA analysis and optimisation.
Book your demo session and discover opportunities for capital optimisation
How does it work in practice?
Having worked with top-providers of RWA calculators in the markets, we have leveraged our expertise and know-how to develop our custom calculator with an optimized workflow:
- Data sourcing: RWA SmartCheck works on the data provided by the bank via Loan Tapes and enriched simulation data that are fed too the model accordingly
- Data ingestion: Both the Bank data and the ones resulting from data enrichment activities are ingested as staging data. In this step configuration files are also defined
- RWA calculation: The tool performs CRR III/Basel IV compliant calculations, applying both Standardized and IRB Approach on the given sets of staging and configuration data
- Calculation ouptut storing: The calculation results obtained as output of the previous stage are organized and stored separarely for all simulation runs
- Data comparison and visualisation: a purpose built dashborading tool (i.e. Risk Data Analyzer) allows to compare multiple scenarios, creates rich data visualization with details on specific RWA drivers contributions
RWA SmartCheck results
Below are two illustrative examples of the results obtained by the RWA Smartcheck on a €10B composite portfolio of corporate and retail exposures, with mixed size and LGD characteristics:
Results under the IRB Approach
The tool allows to identify the following levers for potential RWA optimisation:
- Turnover sourcing improvement: enhance obligor turnover data sourcing to correctly classify large corporates and apply supporting factors for SMEs and avoid conservative fallbacks.
- LGD floor & CRM allocation: optimize LGD flooring treatment and CRM allocation to reduce RWA under the revised IRB framework.
Results under the Standardized Approach
The levers identified for RWA reduction when the SA is applied are:
- Retail/Non Retail asset classification: reclassify Retail / Non-retail exposures to benefit from lower SA risk weights under CRR3 criteria
- External rating enhancement: extend ECAI rating coverage to substitute unrated 100% risk weights with lower rated equivalents
Our subject matter experts
Principal Consultant - Credit Risk, CRR3 & BASEL IV Expert
Abishek Chopra is a seasoned Risk Management professional with over 12 years of experience in multiple areas of credit risk, especially on CRR and Basel guidelines. He has expertise in addressing complex regulatory topics such as credit risk mitigation for RWA optimization of different asset classes, Basel IV application of Whole Loan/Split Loan approaches for mortgages, SA-CCR and Securitisation.
Managing Consultant - Expert in CRR3 & BASEL IV / Credit Risk
Nathan Desmidt is a Managing Consultant with more than 8 years of experience in risk management. Nathan’s area of expertise lies within regulatory capital calculations, specifically in the context of CRR2/CRD5 and upcoming Basel 4/CRR3 regulations. Recently Nathan has been involved in the implementation of a new RWA calculator at a large financial institution aiming to enable Basel 4 compliancy, focusing on validation of RWA calculations in light of the new framework’s developments.
