Explanation

The correct answer is C. SA (Standardized Approach).

Key Points:

• SA (Standardized Approach): This approach uses external credit ratings to determine risk weights for different exposure categories. It can be applied consistently across various asset classes including:

  • Equity exposures
  • Large corporations
  • Financial institutions

• IRB (Internal Ratings-Based Approach): This is a more advanced approach where banks use their own internal models to estimate credit risk parameters. It requires regulatory approval and is typically used for more sophisticated banks.

• F-IRB (Foundation IRB): This is a specific type of IRB approach where banks estimate probability of default (PD) but use supervisory estimates for other parameters like loss given default (LGD).

• BIA (Basic Indicator Approach): This is used for operational risk capital calculation, not credit risk.

Why SA is the correct answer:

The Standardized Approach is designed to be broadly applicable across different types of exposures without requiring sophisticated internal models. It provides a standardized framework that can handle various asset classes simultaneously, making it suitable for equity, large corporations, and financial institutions under a unified methodology.