The other change agreed by the Committee is relevant for banks using the standardised approach for credit risk. When a bank confirms a letter of credit, it has an exposure to another bank (the bank that issues the letter of credit – or the “issuing bank”). In the case of a low income country which imports goods, the issuing bank is usually domiciled in the importer’s country (ie the low income country) and typically does not have an external credit rating. Under the regulatory capital framework, where the risk weights are based on the external ratings of bank counterparties, claims.
