September 25, 2017

ECB published its guide on materiality assessment for changes or extensions to counterparty credit risk (CCR) models. The guide indicates how ECB intends to interpret the existing legal framework. In this guide, ECB explains approval criteria for changes to internal models that directly supervised banks use to calculate capital requirements for counterparty credit and credit valuation adjustment risks. The guide should support both institutions and supervisors regarding the ongoing model monitoring activities, the introduction of material model changes, and the respective model approval process.

The guide assists significant institutions directly supervised by ECB in their self-assessment of the materiality of changes and extensions to internal models used to calculate counterparty credit and credit valuation adjustment (CVA) risks of a business partner, drawing as much as possible on the approaches already defined by EBA for other risk types. Under the Capital Requirements Regulation (CRR), financial institutions can use the internal model method (IMM) for CCR and the advanced method for credit valuation adjustment risk (A-CVA) when calculating capital requirements. These internal models focus on over-the-counter derivatives contracts and securities finance transactions because, for these products, the exposure is calculated in a different way than for a traditional loan, where the exposure is, to a large extent, fixed. The output of these models is one input factor in the calculation of the Pillar 1 capital requirements of a bank. Changes and extensions to both methods require supervisory approval, when such changes or extensions are deemed material.

 

The implementation of the guide will be part of the day-to-day supervisory dialog with individual banks. A consultation on this guide ran from December 16, 2016 to February 14, 2017. The publication of this guide marks the end of the public consultation process on this.

 

Related Links

Guide on Materiality Assessment (PDF)

Comments Received

Consultation on Guide

Keywords: Europe, EU, Banking, CRR, CCR, A-CVA, Internal Models, ECB

Related Articles
News

APRA Updates Guidance on Managing Information Security Risks

APRA released an updated Prudential Practice Guide CPG 234 on managing information security risks, including cyber-crime.

June 25, 2019 WebPage Regulatory News
News

FSB Chair Reports to G20 on Implementation of Financial Reforms

FSB published the letter to G20 Leaders and the opening statement from an FSB briefing by the FSB Chair Randal K. Quarles.

June 25, 2019 WebPage Regulatory News
News

FSB Summarizes Progress in Implementation of G20 Regulatory Reforms

FSB published a summary progress report on implementation of the G20 financial regulatory reforms.

June 25, 2019 WebPage Regulatory News
News

EBA Issues 2020 Stress Test Methodology and Templates for Discussion

EBA published the 2020 EU-wide stress test draft methodology, templates, and template guidance, for discussion with the industry.

June 25, 2019 WebPage Regulatory News
News

SRB Updates MREL Policy to Reflect Changes in CRR 2

SRB updated its policy on minimum requirement for own funds and eligible liabilities (MREL) as a result of the revisions in the recent Banking Package.

June 25, 2019 WebPage Regulatory News
News

OSFI Updates Manual of Reporting Forms and Instructions for Insurers

OSFI issued its annual update for 2019 to the manual of financial reporting forms and instructions for property and casualty (P&C) insurance companies.

June 25, 2019 WebPage Regulatory News
News

PRA Consults on PRA110 Reporting Frequency Threshold

PRA proposed (CP14/19) to amend the reporting frequency of PRA110 reporting template (PRA110) when a firm is in stress.

June 25, 2019 WebPage Regulatory News
News

IMF Releases Report on 2019 Article IV Consultation with United States

IMF published its staff report in the context of the 2019 Article IV consultation with the United States.

June 24, 2019 WebPage Regulatory News
News

FCA and US Agencies on Addressing Issues in Credit Derivatives Market

U.S. SEC Chairman Jay Clayton, U.S. CFTC Chairman J. Christopher Giancarlo, and UK FCA Chief Executive Andrew Bailey issued a joint statement announcing plans to address concerns regarding opportunistic strategies in the credit derivatives markets.

June 24, 2019 WebPage Regulatory News
News

BIS Report Discusses Regulatory Issues Related to Big Techs in Finance

BIS has pre-released a chapter of the BIS Annual Economic Report; this chapter focuses on the risks and opportunities presented by large technology firms in the financial services sector.

June 23, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3315