Featured Product

    MNB Discusses Approach to Modeling Corporate Probability of Default

    September 30, 2020

    MNB published the September issue of the Financial and Economic Review. This issue of the journal includes papers that discuss a possible supervisory benchmark model of the probability of default of corporations, the operational risk management of credit institutions, and the challenges of mortgage bank refinancing. Also included are papers on the general characteristics and impact of the COVID-19 crises in the foreign-exchange forward market of Hungary and the transformation of global supply chains in the manufacturing industry as a result of COVID-19 pandemic.

    The paper on modeling corporate probability of default shows how it is possible to estimate a probability of default for corporate portfolios, which is based on large banks’ corporate default rate data series and available corporate financial data. It uses a harmonized methodology that factors in differences between the credit quality ratings of various customers and is suitable for the supervisor’s calculation of the capital requirement for any given bank. Nonetheless, there may also be other factors in addition to individual financial data that may affect credit quality; identifying these may be one of the objectives of benchmark model development.

    The paper on principles of proportionality in operational risk management of credit institutions provides assistance in the proper application of the principle of proportionality, although it cannot undertake to resolve the dilemmas related to the principles of proportionality. In addition, it contributes to the improvement of the operational risk framework, thus reducing the range of continuously growing natural risks, based on the analysis of the data of Hungarian credit institutions, the analysis of the EU regulatory and Hungarian supervisory requirements, and an assessment of the practices of credit institutions. The author of the paper concludes that the introduction of forward-looking instruments for smaller banks and the harmonization of methodologies for large institutions may ensure that the sector might be prepared to identify and manage its operational risks.

    The paper on mortgage bank refinancing summarizes the operational models of mortgage banks and the new EU mortgage bond regulations. The authors analyze the most important challenges that refinancing mortgage banks are currently facing in Hungary, with regard to the imminent implementation of the European covered bond directive, passed in December 2019. These are basically grouped into three subjects: the characteristics of refinancing loans do not support more efficient portfolio refinancing; the refinancing loan guarantee scheme does not ensure fulfilment of the conditions laid down in other legislation in case of statutory portfolio assignment; and overcollateralization in the current purely refinancing model cannot be achieved from ordinary collateral. On this basis, the authors propose the development of an alternative regulation for “refinancing mortgage banks,” while fully maintaining the current operation. With this alternative regulation, a revised collateral system would help to solve the problems and develop a more efficient mortgage loan structure.

     

    Related Links

    Keywords: Europe, Hungary, Banking, Credit Risk, Probability of Default, Operational Risk, Proportionality, Covered Bond Directive, Covered Bond, Refinancing, Mortgage Loans, MNB

    Related Articles
    News

    EIOPA Report Analyzes Use and Impact of Long-Term Guarantee Measures

    EIOPA submitted—to the European Parliament, the Council of the European Union, and EC—its 2020, fifth, and last annual report on long-term guarantee measures and measures on equity risk.

    December 03, 2020 WebPage Regulatory News
    News

    BIS, SNB, and SIX Announce Successful Completion of CBDC POC

    The BIS Innovation Hub Swiss Centre, SNB, and the financial infrastructure operator SIX announced the successful completion of a joint proof-of-concept (PoC) experiment as part of the Project Helvetia.

    December 03, 2020 WebPage Regulatory News
    News

    EBA Sets Out Treatment of Certain Banking Book Positions Under FRTB

    EBA published the final draft regulatory technical standards for calculation of own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.

    December 03, 2020 WebPage Regulatory News
    News

    EIOPA Consults on Integrating Climate Change into SII Standard Formula

    EIOPA published discussion paper on a methodology for the potential inclusion of climate change in the Solvency II (sometimes also written as SII) standard formula when calculating natural catastrophe underwriting risk.

    December 02, 2020 WebPage Regulatory News
    News

    EU Issues Corrigenda to Investment Firms Directive and Regulation

    EU published, in the Official Journal of the European Union, corrigenda to the Directive and the Regulation on the prudential requirements and supervision of investment firms.

    December 02, 2020 WebPage Regulatory News
    News

    MAS Proposes Changes to Rules Arising from Banking Amendment Act

    MAS proposed amendments to certain regulations, notices, and guidelines arising from the Banking (Amendment) Act 2020.

    December 02, 2020 WebPage Regulatory News
    News

    PRA to Elaborate on Approach to Transposition of CRD5 by Mid-December

    PRA published a statement that explains when to expect further information on the PRA approach to transposing the Capital Requirements Directive (CRD5), including its approach to revisions to the definition of capital for Pillar 2A.

    November 30, 2020 WebPage Regulatory News
    News

    RBNZ Consults on Aspects of Insurance Act, Solvency Standards & IFRS17

    RBNZ launched consultations on the scope of the Insurance Prudential Supervision Act (IPSA) 2010 and on the associated Insurance Solvency Standards.

    November 30, 2020 WebPage Regulatory News
    News

    SRB Sets Out Work Program for 2021-2023

    SRB published the work program for 2021-2023, setting out a roadmap to further operationalize the Single Resolution Fund and to achieve robust resolvability of banks under its remit over the next three years.

    November 30, 2020 WebPage Regulatory News
    News

    EIOPA Consults on KPIs on Sustainability for Non-Financial Reporting

    EIOPA is consulting on the relevant ratios to be mandatorily disclosed by insurers and reinsurers falling within the scope of the Non-Financial Reporting Directive as well as on the methodologies to build these ratios.

    November 30, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6191