ECB Issues Consolidated Version of Guide to Internal Models for Banks
ECB published the consolidated version of its guide to internal models for banks. The guide includes compilation of the general topics and chapters on credit, counterparty credit, and market risks. The general topics contain the overarching principles for internal models, internal model governance, internal validation, internal audit, model use, management of changes to the internal ratings-based (IRB) approach, and third-party involvement.
The chapters on specific risk-types include the following:
- The credit risk chapter helps to provide transparency on how ECB understands a number of topics related to internal models used for the IRB approach, including an initial section covering data maintenance for this approach. On these selected topics, the chapter is aligned with the EBA guidelines on the probability of default estimation, the loss given default estimation, and the treatment of defaulted exposures.
- The market risk chapter helps to provide transparency on how ECB understands a number of topics related to internal models used in the calculation of own funds requirements for market risk. This chapter covers certain modeling aspects related to regulatory back-testing of value-at-risk (VaR) models, VaR, and stressed VaR methodologies and to the incremental default and migration risk charge methodology.
- The counterparty credit risk chapter helps to provide transparency on how ECB understands a number of topics related to the principles defined for the Internal Model Method, as referred to in Part Three, Title II, Chapter 6, Section 6 of the Capital Requirements Regulation or CRR.
Based on the current applicable EU and national law, ECB guide to internal models provides transparency on how the ECB understands the rules and how it intends to apply them when assessing whether institutions meet the requirements. The guide is also intended as a document for the internal use of the different supervisory teams, with the aim of ensuring a common and consistent approach to matters related to internal models. When applying the relevant regulatory framework in specific cases, ECB will take into due consideration the particular circumstances of the institution concerned. This guide should not be construed as going beyond the current existing applicable EU and national law and, therefore, is not intended to replace, overrule or affect the applicable EU and national laws.
Related Links
Keywords: Europe, EU, Banking, Internal Models, TRIM, Credit Risk, Market Risk, Counterparty Credit Risk, CRR, IRB Approach, Internal Model Method, ECB
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
HKMA Outlines Phase 1 of Approach to Promote Sustainable BankingRelated Articles
EBA Updates Filing Rules for Supervisory Reporting
The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.
ECB Amends Guideline on Procedures for Collection of AnaCredit Data
The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.
ECB Amends Guideline on Procedures for Collection of AnaCredit Data
The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.
EBA Publishes Standards on Disclosure of Investment Policy Under IFR
The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).
APRA Finalizes Guidance for New Prudential Standard on Remuneration
The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.
OCC Updated LIBOR Self-Assessment Tool for Banks
The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR).
TCFD Updates Guidance for Financial Disclosures on Climate Risk
The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
BCBS Report Examines Progress on Adoption of Basel III Framework
The Basel Committee on Banking Supervision (BCBS) published the progress report on adoption of the Basel III regulatory framework in member jurisdictions.
ACPR Implements Updates Related to DPM Version 3.1
The French Prudential Supervisory Authority (ACPR) has implemented, in its information system, updates linked to the Data Point Model (DPM) version 3.1.
EBA Note Examines Transition Risks of Benchmark Rates
The European Banking Authority (EBA) published a thematic note that aims to identify and raise awareness of the transition risks of benchmark rates, as the London Interbank Offered Rate (LIBOR) and the Euro Overnight Index Average (EONIA) are close to being phased out.
