ECB Publishes Risk-Specific Chapters of Guide to Internal Models

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

• Press Release
• Guide to Internal Models (PDF)
• Feedback Statement on Consultation (PDF)
• Overview of Consultation and Related Documents

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