Institutions may also calculate the regulatory capital charges for credit risk using a more risk-sensitive approach based on their own rating procedures, the Internal Ratings-Based Approach (IRBA), under which the risk weights are determined using borrower-based risk parameters (Part 2 Chapter 4 of the Solvency Regulation). Institutions can choose between a Foundation Approach (under which the institution only has to estimate the borrower's probability of default (PD)) and an Advanced Approach (under which the institution calculates not only the PD but also the loss given default (LGD), conversion factors for off-balance-sheet business and residual maturities). The risk weights are calculated for individual risk exposures using an IRBA based on individually estimated parameters and classified by given asset classes, using risk weighting formulas. Since the institutions themselves estimate the risk parameters using IRBAs, supervisory approval, which can be given based on an on-site approval examination, is necessary prior to using these approaches.

Overview of German parent undertakings and German institutions authorised to use the IRBA pursuant to Article 143(1) and (2) of Regulation (EU) No 575/2013 (CRR)

The list includes only German ultimate parent undertakings subject to the own funds requirements for credit risk (including German designated entities within the meaning of Article 21a(1) subparagraph 2 of Directive 2013/36/EU (CRD)) and German non-group institutions with permission to use the IRBA; which are directly subject to the requirements for the use of the IRBA pursuant to Part Three, Title II, Chapter 3 of the CRR, or to which these requirements are to be applied correspondingly pursuant to provisions of the German Banking Act or the KfW Regulation.