Question 3 A. The Basel III capital accord has a framework that includes three pillars. The first pillar explains the minimum capital required by a commercial bank and incorporates three risk components: credit risk, operational risk and market risk. Discuss the approaches that may be used to measure the credit risk capital adequacy component of Pillar 1. Using the standardized approach to credit risk, explain, with an example, how a commercial bank can use this method to calculate its minimum capital requirement.
