Use of vendor products in the Basel II IRB framework

This Newsletter sets forth the views of the Basel Committee Accord Implementation Group's Validation Subgroup (AIGV) relating to the use of vendor products within internal ratings-based (IRB) approaches of the Basel II framework. The AIGV developed this Newsletter in response to industry questions about supervisory expectations for incorporating vendor products into banks' IRB processes. The purpose of this note is to further elaborate on supervisory expectations regarding how banks might satisfy IRB validation requirements when vendor products, which frequently introduce information transparency issues, are used within banks' IRB processes. In drafting this document, the AIGV also benefited from recent meetings with various vendors.