Default risk exposure refers to the total risk exposure of on-balance-sheet and off-balance-sheet items expected by the debtor at the time of default, including used credit balance, unpaid interest receivable, expected withdrawal amount of unused credit line and possible related expenses. This formulation comes from the New Basel Capital Accord.

According to the requirements of the new Basel Capital Accord, IRB adopts the same risk-weighted asset calculation method for the risk exposure of countries, banks and companies. This method relies on four aspects of data: one is the probability of default, the other is the loss given default, the third is the risk exposure of default, and the fourth is the validity period.

: Basel II I

The new Basel I is promoted by the Basel Committee on Banking Supervision under the Bank for International Settlements, and its content has been greatly revised against the old Basel I of 1988, aiming at standardizing the international risk control system and improving the risk control ability of international financial services.

The classification of credit risk weight in the old Basel I is too rough, which distorts the whole picture of bank risk and increases legal capital arbitrage.

The prevalence of large banks and the increase in scale and complexity of large banks in recent years also highlight their shortcomings.

The revision of 1996 has brought market risk into the calculation of capital demand, which will be implemented at the end of next year. 1In June 1999, the Basel Committee on Banking Supervision published a new consultation document on the capital adequacy ratio structure, which made a lot of modifications to the old Basel.

200 1 1 new Basel I draft was published, which revised the previous credit risk assessment criteria, added operational risk parameters, and considered three risks in bank capital provision, with a view to standardizing the risk-taking ability of international banks.

The framework was formally finalized in June 2004, and it is hoped that most countries will adopt it before the end of 2006.

The three pillars of the Basel Accord:

Three pillars emphasized by the New Basel Accord:

1. Minimum capital requirements, in which credit risk capital provision includes: standard method, basic internal rating method and advanced internal rating method.

2. Supervise the review process.

3. Market restraint function, namely market discipline.