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If you’re afraid to admit that you don’t know the difference between an RWA, a CCF, and an EL, you’re not alone. In the past, we could leave this to the PhDs in the treasury to sort out — they would kindly inform us of our cost of capital and cost of funds and we could simply carry on lending.

But not knowing just doesn’t cut it anymore.   That’s because capital regulations and management are being integrated into the lending model from the board down to the most granular lending decision.   So, where should you start? 

The Regulations

Unless you are suffering from insomnia, it is understandable that you are not interested in reading the 333 pages of the original Basel II accord.   It includes gems like this:


By now, you may have learned that EL=PD x LGD x EAD, and maybe you’ve seen some of these capital formulas. Your first stop should be this handy article (fondly referred to as the Dummy’s Guide to Basel).

Yet if you thought that you could skip Basel II since we already are on Basel III, you’d be wrong.  Basel II capital calculations and allocation is just the pre-requisite for the fun we’ll have with Basel III.

So if you’re wondering, “What does it all mean? What does this capital equation really implies for my lending business- and better yet – where can I get started?” we’ve got you covered.

The Interwebs and Blogosphere

Normally, we would caution against relying on blog opinions as the best practice for leaning technical information. However, the practice of reading and interpreting opinions and summaries can be a good way to get started.  Here are some blog sites you might find interesting:

Newsfeeds and Regulatory Updates

Subscribe to your home regulator’s newsfeed, along with BIS updates:

You’ll know when new regulations, speeches, and policy issues arise. Then, talk to your colleagues, ask questions, have a discussion or debate, and we’ll figure it out together. What are your favorite blogs and newsfeeds?   Let us know!

Learn more about how we can help clear up the confusion with our CreditLab: Basel course!

Contact Us anytime! We’d love to hear from you!

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