EBA Proposes to Amend Standards on Benchmarking of Internal Models
EBA proposed the draft implementing technical standards that amend the Regulation 2016/2070 on the benchmarking of internal models. EBA is proposing to amend the benchmarking of credit risk, market risk, and IFRS 9 models to include some new elements for the 2022 exercise. For credit risk, EBA is proposing to include additional information on the level of conservatism embedded in the Internal Ratings-Based (IRB) risk parameters. For market risk, EBA is proposing to include new sensitivities related to the sensitivities-based method, in line with the new Fundamental Review of the Trading Book (FRTB) framework. For the IFRS 9 exercise, EBA is proposing to include updated templates with the collection of additional IFRS 9 parameters. The deadline for the submission of comments is February 15, 2021.
Article 78 of the Capital Requirements Directive (CRD IV) requires competent authorities to conduct an annual assessment of the quality of internal approaches used for the calculation of own funds requirements. To assist competent authorities in this assessment, EBA calculates and distributes benchmark values against which individual institutions’ risk parameters can be compared. These benchmark values are based on data submitted by institutions, as laid out in the Regulation 2016/2070, which specifies the benchmarking portfolios, templates, and definitions to be used as part of the annual benchmarking exercises. For the 2022 benchmarking exercise, the changes proposed in the consultation paper includes the following:
- Credit risk. EBA is proposing changes for the purpose of understanding the level of conservatism incorporated in the risk estimates (probability of default and loss given default) and the risk-weighted assets via supervisor add-ons and via the margin of conservatism. In addition, EBA is proposing certain enhancements to the existing data requirements.
- Market Risk. EBA is proposing to extend the data collection to sensitivities-based method, thus extending the existing reporting framework to the instruments and portfolio in the benchmarking. Moreover, a series of minor updates to the list of instruments have been proposed to keep the list of instruments updated, without changing the overall structure of the portfolios, with respect to the previous exercises.
- IFRS 9 templates. EBA is proposing to introduce new data points in the technical standards for the 2022 supervisory benchmarking exercise. The new data points are mainly related to the loss given default (LGD) risk parameter, with other minor adjustments introduced in relation to the forecast of future economic conditions.
The EBA benchmarking exercise forms the basis for supervisory assessment and horizontal analysis of internal models. It ensures consistent monitoring of the impact of the several different supervisory and regulatory measures, with the aim of harmonizing capital requirements in EU. The Annexes presented in the draft technical standards either replace or are added to the existing set of templates to create a consolidated version of the updated draft technical standards package. The draft technical standards will be submitted to EC for endorsement before being published in the Official Journal of the European Union. The technical standards will apply 20 days after publication in the Official Journal of the European Union.
Related Links
Comment Due Date: February 15, 2021
Keywords: Europe, EU, Banking, Implementing Technical Standards, Benchmarking Exercise, CRD IV, Credit Risk, Market Risk, IFRS 9, Reporting, FRTB, Internal Model, Basel, EBA
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.
Scott Dietz
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.