Problem:
Suppose that the assets of a bank consist of $500 million of loans to BBB-rated corporations. The PD for the corporations is estimated as 0.3%. The average maturity is three years and the LGD is 60%.
Required:
Question 1: What are the total risk-weighted-assets for credit risk under the Basel I and Basel II advanced IRB approach?
Question 2: How much Tier 1 and Tiear 2 capital is required?
Question 3: How does this compare with the capital required under the Basel II standardized approach and under Basel I?
Note: Please show how to work it out.