Featured Product

    EBA Releases Results of 2019 Benchmarking Exercise for Internal Models

    January 31, 2020

    EBA published two annual reports that assess the consistency of risk-weighted assets (RWAs) across all EU institutions authorized to use internal approaches for the calculation of capital requirements. The reports cover market risk and credit risk for high- and low-default portfolios (LDPs and HDPs). The results of the 2019 benchmarking exercise confirm that the majority of risk-weight variability can be explained by fundamentals.

    The credit risk report examines the different drivers leading to the observed dispersion across banks' models. The results are broadly in line with the previous exercises, with 50% of the difference in variability explained with simple risk drivers, a risk-weighted deviation on low-default portfolios below 10 percentage points and estimates for high-default portfolios generally on the conservative side when compared with empirical observed metrics. Furthermore, this year, for the first time, on high-default portfolios, EBA performed a comparison with the standardized approach risk-weights. The overall observed variability under the standardized approach is at a similar level than the one observed on internal rating-based (IRB) approach. Within a single exposure class, the variability under the IRB approach follows, in a conservative manner, the empirical variability of risk (observed via default rates). In addition to a questionnaire filled in by supervisors and interviews conducted with seven institutions, a survey was conducted among institutions to better assess the variability of practices in terms of rating scales. This survey highlights the variability of practices on the type of calibration of the probability of default.  

    The market risk report presents the results of the 2019 supervisory benchmarking and summarizes the conclusions drawn from a hypothetical portfolio exercise conducted by EBA during 2018-19. Compared to the previous exercises, the 2019 analysis shows a substantial reduction in terms of dispersion in the initial market valuation and some reduction in risk measures, especially for the aggregated portfolios. This improvement was expected and is likely due to the simplification in the market risk benchmarking instruments. The remaining dispersion is probably the result of new benchmarking instruments being used by banks for the first time. The quantitative analysis, which has been extended in terms of scope with respect to the previous exercises, was also complemented by a questionnaire to competent authorities. Although the majority of the causes were identified and actions were put in place to reduce the unwanted variability of the hypothetical RWAs, the effectiveness of these actions can be evaluated only with ongoing analysis. The 2019 exercise is the first exercise with the new set of hypothetical instruments and portfolios. The new set of instruments mainly consists of vanilla instruments and is more extensive in terms of the number of instruments to model with respect to the three previous benchmarking exercises.

     

    Related Links

    Keywords: Europe, EU, Banking, Credit Risk, Market Risk, Benchmarking, Internal Models, 2019 Benchmarking Exercise, Regulatory Capital, EBA

    Featured Experts
    Related Articles
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News
    News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697