The 'Standardized approach- advanced' is not a recognized method for calculating credit risk capital. The Basel II framework, which provides guidelines for banking supervision, does not include an 'advanced' version of the Standardized approach. The Standardized approach is a simpler method that uses external credit assessments for determining risk weights. It does not have an 'advanced' version like the Internal Ratings Based (IRB) approach. The IRB approach, on the other hand, allows banks to use their internal estimates of risk parameters, and it has two versions: Foundation and Advanced.

Choice A is incorrect. The Standardized Approach is a recognized method for calculating credit risk capital. In this approach, banks use external credit ratings to quantify the risk of their credit exposures.

Choice B is incorrect. The Internal Ratings Based (IRB) – Foundation approach is also a recognized method for calculating credit risk capital. Under this approach, banks use their own internal estimates of probability of default (PD) while other parameters like loss given default (LGD) and exposure at default (EAD) are provided by the regulator.

Choice C is incorrect. The Internal Ratings Based (IRB) – Advanced approach allows banks to use their own internal estimates for all parameters including PD, LGD and EAD in the calculation of risk-weighted assets and hence, the regulatory capital.

Things to Remember

• Basel II framework provides guidelines for banking supervision
• Standardized approach uses external credit assessments for determining risk weights
• Internal Ratings Based (IRB) approach allows banks to use their internal estimates of risk parameters
• IRB approach has two versions: Foundation and Advanced