The use of the internal ratings-based (IRB) approach is not recommended for several reasons:

(1) The CR3 template eliminates by the concept of carrying values requirement the internal ratings-based (IRB) approaches for credit risk that rely only on statistics and probabilities.

(2) CRE30 - IRB approach for Calculation of RWA for credit risk requires that the IRB approach is based on measures of unexpected losses (UL) and expected losses (EL) i.e. the method of calculating absolute VaR (UL + EL) which is a accounting approach. Stochastic models have so far been limited to the estimation of unexpected losses (UL).

(3) Insurance coverage limited to "Maximum 20% operational risk capital charge reduction":

(4) In "Recognizing the risk-mitigating impact of insurance in operational risk modelling" (October 2010), BCBS limits the recognition of insurance to 20% of the total operational risk capital charge calculated under the AMA and says that in practice the actual degree of insurance mitigation is likely to be much lower than 20%. "Supervisors should, therefore, be cautious in assuming that 20% is an appropriate reduction to the total AMA capital and should only allow a bank to recognize this degree of mitigation if appropriately justified".

(5) Inherited from stochastic approaches used under Basel II, IRBs contain the same shortcomings that caused the 2008 financial crisis. Even provisionally approved by the national supervisor, stochastic approaches based on statistics and probabilities do not generate cash surpluses from internal loss mitigation processes and remain factors of aggravation of expenses and losses since, randomly, without removing the bank from the uncertainty of its future accounting results, nor from the bankruptcy, both of the bank and of related third parties, 15% of the average turnover of the last 3 years is allocated to the coverage capital.

(6) As a result, are false, erroneous or misleading and cannot benefit from a reduction in risk coverage capital requirements, because they do not include “carrying or book value” accounts, all loss mitigation techniques outside the CR3 template that is mandatory for all banks. The CR3 template “covers all CRM techniques recognized in the applicable accounting framework (BCBS, DIS40 - Credit Risk).
•This excludes Internal Ratings-Based (IRB) Approaches which rely on stochastic calculations (statistics and probabilities) that date back to 2001, so before SOX Act and other countries' internal control laws (2002-2003). The IRBs were recommended for Basel II with the value-in-used that we experienced with the 2008 financial crisis.

(7) The same is true of the bankruptcy of banks which in 2023 were still using IRB and which were late in the requirement to migrate to an IT accounting system (Citizens Bank, Heartland Tri-State Bank, First Republic Bank, Signature Bank, Silicon Valley Bank, Credit Suisse and Deutsche Bank).