The paper by Michael B. Gordy explores the reconciliation of ratings-based capital rules with portfolio models of credit value-at-risk (VaR). Ratings-based capital rules, such as those in the Basel Accord, assign a capital charge to an instrument based solely on its own characteristics, while portfolio models like CreditMetrics and CreditRisk+ consider the portfolio-level impact of diversification. Gordy demonstrates that ratings-based capital rules can be consistent with portfolio models under specific conditions: the portfolio must be asymptotically fine-grained, meaning no single exposure can account for a significant portion of total exposure, and there must be a single systematic risk factor driving correlations across obligors. The paper also discusses the implications of these conditions for capital charges and provides a methodology for assessing a portfolio-level add-on charge for undiversified idiosyncratic risk. The results are applicable to a broad class of credit risk models and portfolios, offering a framework for regulatory capital requirements that are both portfolio-invariant and consistent with economic capital models.The paper by Michael B. Gordy explores the reconciliation of ratings-based capital rules with portfolio models of credit value-at-risk (VaR). Ratings-based capital rules, such as those in the Basel Accord, assign a capital charge to an instrument based solely on its own characteristics, while portfolio models like CreditMetrics and CreditRisk+ consider the portfolio-level impact of diversification. Gordy demonstrates that ratings-based capital rules can be consistent with portfolio models under specific conditions: the portfolio must be asymptotically fine-grained, meaning no single exposure can account for a significant portion of total exposure, and there must be a single systematic risk factor driving correlations across obligors. The paper also discusses the implications of these conditions for capital charges and provides a methodology for assessing a portfolio-level add-on charge for undiversified idiosyncratic risk. The results are applicable to a broad class of credit risk models and portfolios, offering a framework for regulatory capital requirements that are both portfolio-invariant and consistent with economic capital models.