Featured Product

    PRA Proposes Rules Related to IRB Approach for Credit Risk

    April 07, 2021

    PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk. The proposals would result in the addition of a new Economic Downturn–Credit Risk Part of the PRA Rulebook (Appendix 1) and the amended expectations in the supervisory statement SS11/13 on IRB approaches (Appendix 2). The amended SS11/13 would be in line with the version of the Capital Requirements Regulation (CRR) that was on-shored at the end of the transition period. The comment period for this consultation ends on July 07, 2021 and PRA proposes the implementation date for the changes resulting from CP7/21 to be January 01, 2022.

    The proposals in CP7/21 are relevant for UK banks, building societies, and PRA-designated UK investment firms. The PRA rationale for proposing requirements that specify the nature of an economic downturn is to ensure that consistent and relevant economic indicators are considered. The rationale for proposing to introduce requirements that specify the severity and duration of an economic downturn is to ensure that downturn estimates of loss given default and exposure at default reflect consistent and sufficiently severe downturn scenarios and that the selected downturn period is of sufficient duration to adequately capture the economic impact of a particular downturn event. 

    Within the proposed technical standards in the PRA Rulebook (Appendix 1), PRA proposes a consistent set of economic indicators that would be considered relevant for all exposures, as PRA considers them to be the key indicators of an economic cycle. For specifying the severity of the economic downturn and for identifying the most severe values associated with each relevant economic indicator, PRA proposes to require firms to use a historic time period that is sufficiently long to provide values that are representative of the values that may be taken by those economic indicators in the future, including in a future severe downturn. Additionally, PRA proposes to require firms to consider a period of at least 20 years to promote consistency of the downturn estimates of firms. 

    For the duration of an economic downturn, PRA proposes that a single downturn period should be long enough to cover all the peaks or troughs related to the most severe twelve-month values observed for the different economic indicators associated with that single downturn period. To capture cases where indicators’ twelve-month values peak or trough at the same time or shortly after one another, PRA proposes to introduce a requirement that firms shall combine economic downturns into a single downturn period. The proposed implementation date for the changes resulting from CP7/21 is January 01, 2022; this date is in line with the implementation deadlines set out in the policy statement PS11/20 on the probability of default and loss given default estimation, to enable IRB firms to implement all changes from the IRB roadmap. Firms should continue to submit model change applications in line with the submission timings communicated by their supervisors. In addition to other aspects, PRA invites feedback from firms on the expected impact of the proposals on capital requirements.

     

    Related Links

    Comment Due Date: July 07, 2021

    Effective Date: January 01, 2022

    Keywords: Europe, UK, Banking, Credit Risk, IRB Approach, Economic Downturn, PRA Rulebook, LGD, EAD, Basel, PRA

    Featured Experts
    Related Articles
    News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News
    News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News
    News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.

    September 15, 2022 WebPage Regulatory News
    News

    IOSCO Welcomes Work on Sustainability-Related Corporate Reporting

    The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)

    September 15, 2022 WebPage Regulatory News
    News

    BoE Allows One-Day Delay in Statistical Data Submissions by Banks

    The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.

    September 14, 2022 WebPage Regulatory News
    News

    ACPR Amends Reporting Module Timelines Under EBA Framework 3.2

    The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.

    September 14, 2022 WebPage Regulatory News
    News

    ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies

    The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)

    September 13, 2022 WebPage Regulatory News
    News

    APRA to Modernize Prudential Architecture, Reduces Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.

    September 12, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8514