EBA Consults on Credit Risk Mitigation Guidelines Under A-IRB Approach
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).
Related Links
Comment Due Date: May 25, 2019
Keywords: Europe, EU, Banking, Credit Risk, Credit Risk Mitigation, IRB Approach, CRR, LGD, EBA
Featured Experts
Jun Chen
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.
Pierre Gaudin
Advises financial institutions in Asia on credit decision, risk appetite management, risk monitoring, and process digitization.
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous Article
FSB to Evaluate Effects of Regulatory Reforms on SME FinancingNext Article
BCBS Updates Basel III Monitoring Workbook and FAQsRelated Articles
EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
FSB Sets Out Work Priorities for 2021
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU Publishes Corrigendum to Revised Capital Requirements Regulation
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs Issue Statement on Application of Sustainability Disclosures Rule
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC Consults on Crisis Management and Deposit Insurance Frameworks
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA Proposes Standards for Supervisory Cooperation Under IFD
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE Addresses Banks in Scope of First Resolvability Assessment
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.
