The IRB Use Test: Background and Implementation

This paper is intended to provide background on the evolution of the Basel Committee's thinking on the use test for IRB and clarify expectations for the use of IRB components and risk estimates for internal purposes. It presents a number of principles that are intended to support banks and supervisors in interpreting the key use test provisions of the Basel II Framework. As these principles focus on interpretation rather than expansion of the use test requirements, they are expected to be consistent with guidance on the use test that many jurisdictions have already formalised.