September 07, 2018

ECB is consulting on the credit risk, market risk, and counterparty credit risk chapters of its guide to internal models for banks. The chapters on specific risk-types focus on providing transparency about the way ECB understands the applicable regulations for using internal models to calculate own fund requirements for credit risk, market risk, and counterparty credit risk. The consultation ends on November 07, 2018. ECB also published frequently asked questions (FAQs) on the ECB guide on specific risk-types.

The content of each chapter of the ECB guide is based on the requirements of the Capital Requirements Regulation, or CRR, (Regulation No 575/2013). Each chapter in the consultation expresses how the regulatory provisions of relevance to the topic in question are understood by ECB when it reviews the internal models used by institutions to calculate their own funds requirements. The following key topics have been covered in each chapter:

  • The credit risk chapter covers selected topics regarding the internal ratings-based approach for calculating own funds requirements, including an initial section covering data maintenance for this approach followed by specific modeling aspects related to the estimation of probability of default (PD), loss given default (LGD), and conversion factor (CCF).
  • Regarding the market risk chapter, the selected topics focus on specific modeling aspects related to back-testing of value-at-risk (VaR) models, VaR and stressed VaR methodologies, incremental risk charge methodology, and a framework for risks not captured in the model engines (known as RNIME).
  • The counterparty credit risk chapter outlines ECB’s understanding of the regulatory requirements defined for the Internal Model Method, as referred to in Part Three, Title II, Chapter 6, Section 6 of CRR

The general topics chapter of this guide was published for consultation on March 28, 2018. ECB takes the specificities of each bank into consideration when applying the relevant framework. Certain articles of the Capital Requirements Regulation, or CRR, (Regulation No 575/2013) require ECB to grant permission to use internal models for credit risk, counterparty credit risk, and market risk, where the requirements set out in the corresponding chapters of the CRR are met by the institutions concerned. The guide was drafted in close cooperation with the national competent authorities and draws on the experience gained from on-site investigations in the context of the targeted review of internal models (TRIM) project in 2017 and 2018. It also draws on the feedback received from institutions on a first version of the guide that was made available on February 28, 2017.

 

Related Links

Comment Due Date: November 07, 2018

Keywords: Europe, EU, Banking, Internal Models, TRIM, Credit Risk, Market Risk, Counterparty Credit Risk, CRR, ECB

Related Articles
News

US Agencies Consult on Capital Treatment of Land Development Loans

US Agencies (FDIC, FED, and OCC) issued a proposed rule on the treatment of loans that finance the development of land for purposes of the one- to four-family residential properties exclusion in the definition of high volatility commercial real estate (HVCRE) exposure in the regulatory capital rule.

July 12, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Second Update for July 2019

Under the Single Rulebook question and answer (Q&A) updates for this week, EBA published answers to five questions related to supervisory reporting.

July 12, 2019 WebPage Regulatory News
News

ESMA Updates Manual for European Single Electronic Format in EU

ESMA updated the reporting manual for European Single Electronic Format (ESEF).

July 12, 2019 WebPage Regulatory News
News

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

FED updated the supplemental instructions for FR Y-9C reporting.

July 12, 2019 WebPage Regulatory News
News

EBA Publishes Report on Monitoring Implementation of LCR in EU

EBA published its first report on the monitoring of the implementation of liquidity coverage ratio (LCR) in EU.

July 12, 2019 WebPage Regulatory News
News

EIOPA Consults on Reporting and Disclosures Under Solvency II Review

EIOPA launched a consultation package on supervisory reporting and public disclosure in the context of its work linked with the 2020 Solvency II review.

July 12, 2019 WebPage Regulatory News
News

APRA Applies Additional Capital Requirements to Three Australian Banks

APRA is applying additional capital requirements to three major banks in Australia to reflect higher operational risk identified in their risk governance self-assessments.

July 11, 2019 WebPage Regulatory News
News

IMF Report on 2019 Article IV Consultation on Euro Area Policies

IMF published its staff report in context of the 2019 Article IV consultation on euro area policies with member countries.

July 11, 2019 WebPage Regulatory News
News

FSB to Survey Practices on Cyber Incident Response and Recovery

FSB launched a survey on the industry practices on cyber incident response and recovery.

July 11, 2019 WebPage Regulatory News
News

ECB Appoints New Members of Supervisory Board

The Governing Council of ECB appointed Edouard Fernandez-Bollo, Kerstin af Jochnick, and Elizabeth McCaul as representatives to the Supervisory Board of ECB Banking Supervision, for a five-year non-renewable term.

July 11, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3441