Recall that retail exposures were calculated similarly to that of advanced IRB only that there is no maturity adjustment. So,

$$\begin{aligned} \text{RWA} &= 12.5 \times \text{EAD} \times \text{LGD} \times (\text{DR} - \text{PD}) \times \text{MA} \\ &= 12.5 \times 300 \times 0.30 \times (0.10 - 0.01) \times 2.5 \\ &= \text{CAD } 253.125 \text{ million} \end{aligned}$$

Note.

• Under Basel II, banks are required to maintain a total capital ratio (Tier 1 + 2 + 3) of minimum 8%. 12.5 is the inverse of 8%. The multiplier has the effect of turning a capital requirement into a RWA measure.
• EAD = Exposure at Default
• LGD = Loss Given Default
• DR = the default rate at the 99.9th percentile for a large portfolio of assets of type i.
• PD = The bank's own probability of default