Featured Product

    EBA Issues Opinion on Amendments to Standards on Economic Downturn

    August 31, 2020

    EBA published an Opinion in response to the EC intention to amend the final draft regulatory technical standards on the specification of the nature, severity, and duration of an economic downturn under the Capital Requirements Regulation (CRR). These standards are to be taken into account for the estimation of loss given default (LGD) appropriate for an economic downturn and for the estimation of conversion factor (CF) appropriate for an economic downturn, where LGDs and CFs are estimated under the internal ratings-based (IRB) approach. According to EBA, several changes introduced by EC would alter the agreed policy. Therefore, EBA is suggesting certain changes with the aim of maintaining the agreed consensus of the originally submitted text.

    The EBA Opinion identified three substantive changes introduced by EC:

    • The first one is about the deletion of the requirement, which states that the economic indicators related to one downturn period should be significantly correlated. EBA is of the view that such requirement should be re-introduced.
    • The second substantive change relates to the introduction of a proportionality principle for the cost of data (Recital 10 and Article 2), which alters the agreed policy. Here, EBA suggests some redrafting to clarify the relevant data sources.
    • For the third substantive change, which is about removing the possibility of considering a shorter time series than 20 years for economic indicators related to an EU member state that joined EU less than 20 years ago, EBA agrees to EC, despite the substantive nature of the change.

    In addition, EBA identified a number of non-substantive and drafting changes, which, in its view, may hamper the clarity of the text. EBA is, therefore, proposing alternative drafting suggestions. The non-substantive changes include redrafting of requirement to customize economic factors to the geographical areas and sectors and deletion of Article 5, which requires annual and, if appropriate, ad hoc review of downturn periods. 

    In November 2018, EBA had submitted, to EC, the final draft regulatory technical standards on the specification of the nature, severity, and duration of an economic downturn in accordance with the CRR (EU Regulation No 575/2013). In its letter of July 20, 2020, EC had informed EBA of its intention to endorse the draft standards with amendments and submitted to EBA a modified version of the regulatory technical standards, with its envisaged changes. EBA has now delivered this Opinion in accordance with Article 10(1), subparagraph 6, of Regulation No 1093/2010, which requires EBA to submit its response in the form of an opinion to amendments proposed by EC.

     

    Related Links

    Keywords: Europe, EU, Banking, Credit Risk, CRR, Basel, Regulatory Capital, IRB Approach, EBA

    Featured Experts
    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    HKMA Announces Launch of Data Repository on Sustainable Finance

    The Hong Kong Monetary Authority (HKMA) announced that the Green and Sustainable Finance (GSF) Cross-Agency Steering Group has launched the information and data repositories and outlined the progress made in advancing the development of green and sustainable finance in Hong Kong.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    NGFS Report on Integration of G-Cubed Model into NGFS Scenarios

    The Network for Greening the Financial System (NGFS) published a report that explores the feasibility of integrating the G-Cubed general equilibrium model into the NGFS suite of models.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8301