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    EBA Updates Standards for Benchmarking of Internal Approaches

    June 03, 2021

    EBA published an update to the implementing technical standards on benchmarking of internal approaches. The updated implementing technical standards include all benchmarking portfolios and metrics that will be used for the 2022 exercise. The benchmarking exercise is an essential supervisory tool to enhance the quality of internal models, which is particularly important in a stressed economic situation. The exercise covers approved internal approaches used for own funds requirements calculation of credit and market risks as well as internal models used for IFRS 9. The draft implementing technical standards will be submitted to EC for endorsement before being published in the Official Journal of the European Union.

    The Capital Requirements Directive (CRD) IV requires competent authorities to conduct an annual assessment of the quality of internal approaches used for the calculation of own funds requirements. To assist competent authorities in this assessment, EBA calculates and distributes benchmark values against which risk parameters of individual institutions can be compared. These benchmark values are based on data submitted by institutions as laid out in the Commission Implementing Regulation 2016/2070, where the benchmarking portfolios, templates, and definitions to be used as part of the annual benchmarking exercises are specified in more detail. For the 2022 benchmarking exercise, the following changes to the reporting templates and instructions have been deemed necessary:

    • For the market risk benchmarking, the framework is extended to allow the collection of new information, particularly for the collection of sensitivities-based measures. The inclusion of sensitivities will prepare the exercise for the new Fundamental Review of the Trading Book (FRTB) framework for determining capital requirements for market risk in EU. In addition, some instruments have been updated and clarified, while the overall composition of the portfolio has marginally changed with respect to the 2021 exercise. Moreover, the submission deadlines for initial market valuation have been extended by additional two weeks while the submission deadlines for the risk measures have been extended by one week.
    • For the credit risk templates, a limited number of additional data fields was added to understand the level of conservatism incorporated in the risk estimates (Probability of Default and Loss Given Default) and the resulting risk-weighted assets via supervisory imposed add-ons and via the margin of conservatism. In addition, some enhancements were made for the existing data requirements.
    • For the IFRS 9 templates, a limited number of additional data fields has been included to collect information on additional IFRS 9 parameters—in particular the Loss Given Default, in line with the staggered approach communicated in the IFRS 9 roadmap from July 2019.

    The updates also include changes and clarifications EBA has introduced based on the consultation paper on the implementing technical standards amending the Commission Implementing Regulation 2016/2070 with regard to benchmarking of internal models, which was published on December 17, 2020. The Annexes presented in the draft implementing technical standards replace, or are added to, the existing set of templates to create a consolidated version of the updated draft implementing technical standards package.

     

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    Keywords: Europe, EU, Banking, Implementing Technical Standards, Benchmarking, Own Funds, Market Risk, Credit Risk, IFRS 9, CRD, Reporting, Probability of Default, Loss Given Default, Internal Models, Regulatory Capital, EBA

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