EBA published a report that analyzes the extent to which the national law of member states relies on external credit ratings. The analysis identified no mechanistic reliance on external credit ratings. Furthermore, using the EBA supervisory reporting data, the report shows that the use of external credit ratings in the calculation of risk-weighted exposure amounts under the standardized approach and under the External Ratings Based Approach (SEC-ERBA) of the securitization framework is limited. In this report, EBA recommends removal of the mandate laid down in Article 161 (3) of the Capital Requirements Directive (CRD) to publish this bi-annual report.
The said CRD mandate requires EBA, in cooperation with ESMA and EIOPA, to publish a bi-annual report on the reliance on external credit ratings in national law and how competent authorities meet their obligations under Article 77(1) and (3) and Article 79(b) CRD and the degree of supervisory convergence in that regard. The recommendation is made on the basis of the limited references to external credit ratings found in the national law of member states, along with developments in international regulation, namely the provisions to reduce mechanistic reliance on external credit ratings in the standardized approach of the credit risk framework in the final Basel III reforms and in the new securitization framework introduced in the Capital Requirements Regulation (CRR). In addition, the report stresses that the “enhanced due diligence” introduced in the final Basel III framework should be implemented in the EU framework. To collect the relevant information, in December 2020, EBA had launched a survey among EU banking supervisors, which showed that the national law of member states does not introduce mechanistic references to external credit ratings and that the CRD-related requirements to reduce reliance have been transposed into national legislation.
Keywords: Europe, EU, Banking, External Credit Ratings, CRD, CRR, Credit Risk, Standardized Approach, Securitization Framework, Basel, Regulatory Capital, SEC-ERBA, EBA
Previous ArticleSRB Issues Blueprint for Review of Crisis Management Framework
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
The European Banking Authority (EBA) published answers to 29 questions in the Single Rulebook Question and Answer (Q&A) tool in September.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards