Fitch Ratings just released a report on Basel II's internal-rating based (IRB) approach to measuring regulatory capital for credit risk. The study -- which is called Demystifying Basel II: A Closer Look at the IRB Measures and Disclosure Framework--looks at the technicalities of the IRB approach as well as explains the impact of recent policy decisions and changes to the framework. It also shows how the rating enhancement for particular asset portfolios would look in terms of the new approach.

Fitch also highlights some of the significant analytical issues for market participants to keep in mind when looking at new credit risk disclosures under Basel II, focusing mainly on corporate and retail exposures and not on the treatment of securitization and credit risk mitigation.

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