Explanation:
Under the Basel regulatory framework, specifically regarding the Fundamental Review of the Trading Book (FRTB), securitization exposures are strictly prohibited from being modeled under the Internal Models Approach (IMA). This is due to the inherent complexity, non-linear risk, and specific risk characteristics (such as tranche structure, default risk, and migration risk) associated with securitizations. Therefore, banks are required to use the Standardized Approach to compute the capital requirements for any securitization positions.
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Q.57 Which of the following approaches should banks use to compute capital with respect to assets held under a securitization business model?
A
Internal models approach
B
Standardized approach
C
Advanced measurement approach
D
Revised internal models approach
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