Featured Product

    PRA and Firms Discuss IRB Capital Calculations for Mortgage Exposures

    October 14, 2020

    PRA held a virtual meeting with firms that are using an internal ratings-based (IRB) model to calculate capital requirements for residential mortgage exposures. The meeting was intended to enhance dialog between PRA and firms before model submissions. At the event, PRA presented on the most relevant cross-firm modeling issues and further discussed its expectations regarding the development of hybrid probability of default (PD) and loss given default (LGD) models.

    PRA was expected to provide further clarifications on common cross-firm modeling issues while firms were expected to highlight risks and challenges to internal model governance, implementation timelines, and submission to PRA. PRA provided an overview of its expectations regarding the development of hybrid PD models, highlighting the most common modeling issues in the areas of calibration, measurement of cyclicality, modeling of sub-portfolios, and margins of conservatism. PRA also outlined its expectations on the development of LGD models, highlighting the most common modeling issues with respect to downturn periods, probability of possession given default, use of rating scales, and treatment of unresolved exposures.

    This meeting followed the publication of the policy statements PS11/20 titled "Credit risk: Probability of default and loss given default estimation" and PS12/20, which addresses potential inconsistencies in practices across firms in relation to the capital treatment of retirement interest-only mortgages. PS11/20 finalized the policy related to PD and LGD estimation and updated SS11/13 on internal ratings-based approaches. SS11/13 covers the principal topics of corporate governance, permanent partial use and sequential implementation, overall requirements for estimation, definition of default, PD, LGD, exposure at default, validation, income-producing real estate portfolios, and notification and approval of changes to approved models.

     

    Related Links

    Keywords: Europe, UK, Banking, Regulatory Capital, Probability of Default, Loss Given Default, Mortgage Exposures, IRB Approach, Credit Risk, Basel, PRA

    Featured Experts
    Related Articles
    News

    HKMA Finalizes Policy Modules on Group-Wide Approach and Remuneration

    The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.

    July 29, 2021 WebPage Regulatory News
    News

    EBA Guide to Monitor Threshold for Intermediate Parent Undertakings

    The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).

    July 28, 2021 WebPage Regulatory News
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    ESMA Group Issues Recommendations on RFR Switch in Interdealer Market

    The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.

    July 26, 2021 WebPage Regulatory News
    News

    ECB Study Assesses Impact of Basel III Finalization Package

    The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.

    July 26, 2021 WebPage Regulatory News
    News

    ISDA Finds FRTB Results in Higher Capital Charges for Carbon Trading

    The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.

    July 26, 2021 WebPage Regulatory News
    News

    PRA Updates Remuneration Policy Statement Templates and Tables

    The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.

    July 26, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7307