ECB Finalizes Methodology to Assess CCR and A-CVA Risk of Banks
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk. Under European Union law, banks are allowed to use internal models to calculate the value of their exposures to CCR and CVA risk as long as these models meet regulatory requirements. This guide explains the ECB methodology to assess the validity of such models, especially in internal model investigations. ECB also published a feedback statement on the comments received during the consultation on the draft guide.
The guide is to be applied in the context of any CCR-related internal model investigation—before or after approval—and the ongoing monitoring of approved internal models. It outlines, for supervisors, how ECB intends to investigate compliance with the existing legal framework when performing these tasks. The assessment methodology determines which model components need to be investigated by supervisors and the minimum level of depth and detail needed to form a supervisory judgment on the model's compliance with the existing regulation. The guide provides optional guidance to significant institutions on the self-assessment of their internal model method and A-CVA models. The guide is also relevant when banks apply to extend or make changes to their models as well as for the ongoing monitoring of such models by ECB. The guide aims to harmonize supervisory practices related to the internal counterparty credit risk models and to provide transparency regarding the methodologies ECB uses to assess the components of these models during investigations.
Related Links
Keywords: Europe, EU, Banking, Counterparty Credit Risk, IMM, Internal Models, Credit Valuation Adjustment, Regulatory Capital, OTC Derivatives, Credit Risk, CRR, A-CVA, Supervisory Assessment, 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.
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Previous Article
UK Authorities Update Timeline of Key Regulatory InitiativesRelated Articles
Regulators Fine Goldman Sachs for Risk Management Failures
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).
Canada Hosts International Conference of Banking Supervisors
BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.
FCA Proposes More Measures to Help Insurance Customers Amid Crisis
FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.
EBA Issues Opinion to Address Risk Stemming from Legacy Instruments
EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.
ESRB Publishes Non-Bank Financial Intermediation Risk Monitor for 2020
ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).
HM Treasury Publishes Policy Statement Amending Benchmarks Regulation
HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.
APRA Initiates Action Against a Bank for Liquidity Compliance Breach
APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.
PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2
PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).
US Agencies Finalize Rule to Reduce Impact of Large Bank Failures
US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).
US Agencies Finalize Rule on Net Stable Funding Ratio Requirements
US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.
