July 08, 2019

ECB published final chapters of the guide to bank internal models, covering the market, credit and counterparty credit risks. The chapters on specific risk types provide transparency on how ECB understands regulations on the use of internal models to calculate own funds requirements for market, credit and counterparty credit risks. ECB had conducted a consultation on the chapters on specific risk types of the guide, which ended in November 2018. Post the consultation, ECB also published a feedback statement and the comments received from the industry.

The content of each chapter of the ECB guide is based on the requirements of the Capital Requirements Regulation or CRR (575/2013). The following chapters on specific risk-types are intended to ensure a common and consistent approach to the most relevant aspects of the regulations on internal models for banks directly supervised by ECB:

  • The credit risk chapter helps to provide transparency on how ECB understands a number of topics related to internal models used for the internal ratings-based approach, including an initial section covering data maintenance for this approach. On these selected topics, the chapter is aligned with EBA guidelines on the probability of default estimation, the loss given default estimation, and the treatment of defaulted exposures.
  • The market risk chapter helps to provide transparency on how ECB understands a number of topics related to internal models used in the calculation of own funds requirements for market risk. This chapter covers certain modeling aspects related to regulatory back-testing of value-at-risk (VaR) models, VaR, and stressed VaR methodologies and to the incremental default and migration risk charge methodology.
  • The counterparty credit risk chapter helps to provide transparency on how ECB understands a number of topics related to the principles defined for the Internal Model Method, as referred to in Part Three, Title II, Chapter 6, Section 6 of CRR.

The guide was drafted in close cooperation with the national competent authorities and draws on experience gained in the context of the targeted review of internal models (TRIM) project. TRIM is a multi-year project that aims to make the implementation of internal models more consistent. It is essential to creating a level playing field for banks under ECB supervision.

 

Related Links

Keywords: Europe, EU, Banking, Internal Models, TRIM, Credit Risk, Market Risk, Counterparty Credit Risk, CRR, ECB

Related Articles
News

US Agencies Consult on Capital Treatment of Land Development Loans

US Agencies (FDIC, FED, and OCC) issued a proposed rule on the treatment of loans that finance the development of land for purposes of the one- to four-family residential properties exclusion in the definition of high volatility commercial real estate (HVCRE) exposure in the regulatory capital rule.

July 12, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Second Update for July 2019

Under the Single Rulebook question and answer (Q&A) updates for this week, EBA published answers to five questions related to supervisory reporting.

July 12, 2019 WebPage Regulatory News
News

ESMA Updates Manual for European Single Electronic Format in EU

ESMA updated the reporting manual for European Single Electronic Format (ESEF).

July 12, 2019 WebPage Regulatory News
News

FED Updates Supplemental Instructions for Reporting Form FR Y-9C

FED updated the supplemental instructions for FR Y-9C reporting.

July 12, 2019 WebPage Regulatory News
News

EBA Publishes Report on Monitoring Implementation of LCR in EU

EBA published its first report on the monitoring of the implementation of liquidity coverage ratio (LCR) in EU.

July 12, 2019 WebPage Regulatory News
News

EIOPA Consults on Reporting and Disclosures Under Solvency II Review

EIOPA launched a consultation package on supervisory reporting and public disclosure in the context of its work linked with the 2020 Solvency II review.

July 12, 2019 WebPage Regulatory News
News

APRA Applies Additional Capital Requirements to Three Australian Banks

APRA is applying additional capital requirements to three major banks in Australia to reflect higher operational risk identified in their risk governance self-assessments.

July 11, 2019 WebPage Regulatory News
News

IMF Report on 2019 Article IV Consultation on Euro Area Policies

IMF published its staff report in context of the 2019 Article IV consultation on euro area policies with member countries.

July 11, 2019 WebPage Regulatory News
News

FSB to Survey Practices on Cyber Incident Response and Recovery

FSB launched a survey on the industry practices on cyber incident response and recovery.

July 11, 2019 WebPage Regulatory News
News

ECB Appoints New Members of Supervisory Board

The Governing Council of ECB appointed Edouard Fernandez-Bollo, Kerstin af Jochnick, and Elizabeth McCaul as representatives to the Supervisory Board of ECB Banking Supervision, for a five-year non-renewable term.

July 11, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3441