EBA issued a consultation on the guidelines on credit risk mitigation for institutions applying the advanced internal rating-based (A-IRB) approach, with own estimates of loss given defaults (LGDs). The consultation runs until May 25, 2019. The consultation contains guidelines on the application of the credit risk mitigation provisions laid down in the Capital Requirements Regulation (CRR), which is applicable to institutions using the A-IRB approach. The guidelines clarify the eligibility requirements for different credit risk mitigation techniques, namely funded and unfunded credit protection (for example, collateral and guarantees) available to institutions.
For funded credit protection, the guidelines provide a mapping to the eligibility requirements of legal certainty and collateral valuation applicable to institutions using the standardized approach and the A-IRB approach. The guidelines also clarify how institutions may recognize the effects of different credit risk mitigation techniques for capital requirement purposes. For unfunded credit protection, the guidelines clarify the set of compliant approaches that are available to institutions to recognize the effects of the credit protection by adjusting their risk parameter estimates—that is, the probability of default or the LGD. Moreover, the guidelines clarify whether exposure values or LGD estimates are to be adjusted to recognize different forms of funded credit protection, namely netting and collateral.
The aim of the guidelines is to eliminate the remaining significant differences in approaches in the area of credit risk mitigation, which are either due to different supervisory practices or bank-specific choices. These draft guidelines complement the EBA report on credit risk mitigation, which focused on the standardized approach and the foundation-IRB approach (F-IRB).
Comment Due Date: May 25, 2019
Keywords: Europe, EU, Banking, Credit Risk, Credit Risk Mitigation, IRB Approach, CRR, LGD, EBA
A well-recognized researcher in the field; offers many years of experience in the real estate ﬁnance industry, and leads research efforts in expanding credit risk analytics to commercial real estate.
Previous ArticleFSB to Evaluate Effects of Regulatory Reforms on SME Financing
Next ArticleBCBS Updates Basel III Monitoring Workbook and FAQs
EIOPA submitted—to the European Parliament, the Council of the European Union, and EC—its 2020, fifth, and last annual report on long-term guarantee measures and measures on equity risk.
The BIS Innovation Hub Swiss Centre, SNB, and the financial infrastructure operator SIX announced the successful completion of a joint proof-of-concept (PoC) experiment as part of the Project Helvetia.
EBA published the final draft regulatory technical standards for calculation of own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.
EIOPA published discussion paper on a methodology for the potential inclusion of climate change in the Solvency II (sometimes also written as SII) standard formula when calculating natural catastrophe underwriting risk.
EU published, in the Official Journal of the European Union, corrigenda to the Directive and the Regulation on the prudential requirements and supervision of investment firms.
MAS proposed amendments to certain regulations, notices, and guidelines arising from the Banking (Amendment) Act 2020.
PRA published a statement that explains when to expect further information on the PRA approach to transposing the Capital Requirements Directive (CRD5), including its approach to revisions to the definition of capital for Pillar 2A.
RBNZ launched consultations on the scope of the Insurance Prudential Supervision Act (IPSA) 2010 and on the associated Insurance Solvency Standards.
SRB published the work program for 2021-2023, setting out a roadmap to further operationalize the Single Resolution Fund and to achieve robust resolvability of banks under its remit over the next three years.
EIOPA is consulting on the relevant ratios to be mandatorily disclosed by insurers and reinsurers falling within the scope of the Non-Financial Reporting Directive as well as on the methodologies to build these ratios.