Featured Product

    EBA Guidelines on Estimation of Risk Parameters Under IRB Approach

    November 20, 2017

    EBA published the final guidelines on the estimation of risk parameters for non-defaulted exposures and on the treatment of defaulted exposures under the advanced internal ratings-based (IRB) approach. The non-defaulted exposures include the estimation of risk parameters such as the probability of default (PD) and the loss given default (LGD) while the defaulted exposures include estimation of parameters such as best estimate of expected loss (ELBE) and LGD in-default. The guidelines are complemented by a report on the results of EBA qualitative survey conducted across the EU banks using the IRB approach. The guidelines apply from January 01, 2021, but competent authorities may accelerate the timeline of this transition at their discretion.

    The guidelines clarify the estimation of risk parameters under the IRB Approach, with focus on PD and LGD parameters, on selected aspects of the application of these risk parameters, and on the regular reviews of estimates. The clarifications focus on the main concepts and definitions underlying the calibration of risk parameters, as these are the basis for the calculation of capital requirements and, therefore, have to be identified in an objective manner. The clarifications included in the guidelines cover, among other items, the discounting factor used to calculate realized LGD on historical observations. EBA is also planning to publish a list of equivalent interest rates for exposures in currencies other than euro to be used in the LGD estimation.

    The report on IRB modeling practices includes an overview of the current practices in IRB modeling and provides a detailed impact assessment of the guidelines. Changes are expected to apply to the majority of existing models to ensure compliance with these guidelines. However, the materiality of these changes will have to be assessed and treated in accordance with the Commission Delegated Regulation (EU) No 529/2014 on the materiality of extensions and changes to rating systems. These guidelines, which are part of EBA's regulatory review of the IRB approach, aim to restore market participants' trust in internal models by reducing the unjustified variability in their outcomes, ensuring comparability of risk estimates and preserving risk-sensitivity of capital requirements.

     

    Related Links

    Effective Date: January 01, 2021

    Keywords: Europe, EU, Banking, IRB Approach, PD and LGD, Advanced Approaches, EBA

    Related Articles
    News

    APRA Revises Related Entities Standard for Banks

    APRA published a strengthened prudential standard APS 222 on associations with related entities, with the aim to mitigate contagion risk within banking groups.

    August 20, 2019 WebPage Regulatory News
    News

    FSB on Responses to Consultation on Wind-Down of Trading Portfolios

    FSB published responses received to the consultation on the solvent wind-down of the derivatives and trading book portfolio of a global systemically important bank (G-SIB).

    August 19, 2019 WebPage Regulatory News
    News

    FSB Publishes Responses to Consultation on Resolvability Disclosures

    FSB published responses received to the consultation on disclosures for resolution planning and resolvability of banks.

    August 19, 2019 WebPage Regulatory News
    News

    HKMA Revises Implementation Schedule for Initial Margin Rules

    HKMA intends to adopt a revised implementation schedule for the margin requirements for non-centrally cleared derivatives.

    August 16, 2019 WebPage Regulatory News
    News

    HKMA Revises Guideline on Application of Banking Disclosure Rules

    HKMA issued a revised version of the Supervisory Policy Manual module CA-D-1 on guideline on the application of the Banking (Disclosure) Rules (BDR).

    August 16, 2019 WebPage Regulatory News
    News

    ECB Decision on Recognizing Reporting Member States Under AnaCredit

    ECB has finalized the Decision 2019/1348 (ECB/2019/20) that establishes procedure for recognizing non-euro area member states as reporting member states under the AnaCredit Regulation (EU 2016/867).

    August 16, 2019 WebPage Regulatory News
    News

    FASB Proposes to Extend CECL Standard Deadline for Certain Entities

    FASB proposed an Accounting Standards Update that would grant private companies, not-for-profit organizations, and certain small public companies additional time to implement FASB standards on current expected credit losses (CECL), leases, and hedging.

    August 15, 2019 WebPage Regulatory News
    News

    IASB Adds Phase Two of IBOR Reform to Its Work Plan

    IASB (or the Board) has added the second phase of its project focused on potential financial reporting implications linked to the interest rate benchmark reform—interbank offer rate (IBOR) reform—to its work plan.

    August 15, 2019 WebPage Regulatory News
    News

    FED Updates Draft Instructions for Proposed FR Y-14 Reporting Forms

    FED updated draft instructions for the monthly, quarterly, and annual capital assessments and stress testing reports, also known as forms FR Y-14M, FR Y-14Q, FR Y-14A, respectively.

    August 15, 2019 WebPage Regulatory News
    News

    FASB Proposes Taxonomy Changes Related to Topics 326, 815, and 842

    FASB is proposing taxonomy improvements for the proposed Accounting Standards Update on clarifying the interactions among topic 321 on investments in equity securities), topic 323 on investments under equity method and joint ventures), and topic 815 on derivatives and hedging.

    August 15, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3665