Featured Product

    EBA Issues Guidelines Related to Internal Model Market Risk Approach

    July 13, 2021

    The European Banking Authority (EBA) published the final guidelines that set out requirements for data inputs used to determine the scenarios of future shocks applied to modellable risk factors. The guidelines clarify the conditions that data inputs for modellable risk factors should meet for their use in the expected shortfall calculations. Institutions using the alternative Internal Model Approach (IMA) for market risk are required to compute the expected shortfall risk measure for their modellable risk factors. The guidelines, which are part of the deliverables included in the roadmap for the new market and counterparty credit risk approaches, will be applicable from January 01, 2022.

    The final guidelines set out criteria in relation to the accuracy, appropriateness, frequency of updates, and completeness of data inputs used by institutions for their modellable risk factors. The criteria aim to ensure the calibration of data inputs to historical data reflective of prices observed or quoted in the market, capture of general and specific risks, updates at appropriate frequency and whenever changes in market conditions require it, and replacement of any missing or inconsistent values in the data inputs, as needed. The data inputs used to determine the scenarios of future shocks applied to the modellable risk factors for the computation of the expected shortfall measure must, according to Article 325bc of the Capital requirements Regulation (CRR), be calibrated to historical data, from either the preceding 12-month period or a continuous 12-month period of financial stress. Institutions may use different sources or types of historical data for this purpose. Once a risk factor has been deemed modellable, an institution should verify that data inputs for the risk factor are accurate, appropriate, frequently updated and complete, based on the provisions included in these guidelines. The guidelines also include provisions to cover the following cases:

    • Data inputs used in multifactor models (beta approximations) and other random data-generating approaches for the purpose of determining the scenarios of future shocks
    • Data inputs used for combinations of risk factors
    • Interpolation and extrapolation techniques used for replacing missing or inconsistent values in the data input

    The revised Capital Requirements Regulation (revised CRR) implements, into EU legislation, the revised framework for minimum capital requirements for market risk, also known as the Fundamental Review of the Trading Book (FRTB), developed by the Basel Committee of Banking Supervision. One of the aspects introduced by the FRTB and included in the revised CRR is the alternative internal model approach, specifically revised to overcome the identified drawbacks in the Basel 2.5 internal model approach. The alternative internal model approach comprises three different components, one of which is the expected shortfall risk measure.

     

    Related Links

    Effective Date: January 01, 2022

    Keywords: Europe, EU, Banking, Market Risk, CRR, CRR2, FRTB, Expected Shortfall, Counterparty Credit Risk, Basel, Regulatory Capital, Internal Models, EBA

    Featured Experts
    Related Articles
    News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News
    News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.

    September 15, 2022 WebPage Regulatory News
    News

    IOSCO Welcomes Work on Sustainability-Related Corporate Reporting

    The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News
    News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News
    News

    BoE Allows One-Day Delay in Statistical Data Submissions by Banks

    The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.

    September 14, 2022 WebPage Regulatory News
    News

    ACPR Amends Reporting Module Timelines Under EBA Framework 3.2

    The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.

    September 14, 2022 WebPage Regulatory News
    News

    ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies

    The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)

    September 13, 2022 WebPage Regulatory News
    News

    APRA to Modernize Prudential Architecture, Reduces Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.

    September 12, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8514