General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
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

FDIC Consults on Approach to Resolution Planning for IDIs

FDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.

April 22, 2019 WebPage Regulatory News
News

HKMA Decides to Maintain Countercyclical Capital Buffer at 2.5%

HKMA announced that, in accordance with the Banking (Capital) Rules, the countercyclical capital buffer (CCyB) ratio for Hong Kong remains at 2.5%.

April 16, 2019 WebPage Regulatory News
News

EP Approves Agreement on Package of CRD 5, CRR 2, BRRD 2, and SRMR 2

The European Parliament (EP) approved the final agreement on a package of reforms proposed by EC to strengthen the resilience and resolvability of European banks.

April 16, 2019 WebPage Regulatory News
News

EP Resolution on Proposal for Sovereign Bond Backed Securities

The European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).

April 16, 2019 WebPage Regulatory News
News

PRA Seeks Input and Issues Specifications for Insurance Stress Tests

PRA announced that it will conduct an insurance stress test for the largest regulated life and general insurers from July to September 2019.

April 15, 2019 WebPage Regulatory News
News

PRA Finalizes Policy on Approach to Managing Climate Change Risks

PRA published the policy statement PS11/19, which contains final supervisory statement (SS3/19) on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change (Appendix).

April 15, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: First Update for April 2019

EBA published answers to nine questions under the Single Rulebook question and answer (Q&A) updates for this week.

April 12, 2019 WebPage Regulatory News
News

EIOPA Statement on Application of Proportionality in SCR Supervision

EIOPA published a supervisory statement on the application of proportionality principle in the supervision of the Solvency Capital Requirement (SCR) calculated in accordance with the standard formula.

April 11, 2019 WebPage Regulatory News
News

FED Updates Form and Supplemental Instructions for FR Y-9C Reporting

FED updated the form and supplemental instructions for FR Y-9C reporting. FR Y-9C is used to collect data from domestic bank holding companies, savings and loan holding companies, U.S intermediate holding companies, and securities holding companies with total consolidated assets of USD 3 billion or more.

April 11, 2019 WebPage Regulatory News
News

OSFI Finalizes Guidelines on Liquidity Adequacy and NSFR Disclosures

OSFI published the final Liquidity Adequacy Requirements (LAR) guideline and the net stable funding ratio (NSFR) disclosure requirements guideline.

April 11, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2929