EBA Updates Standards for Benchmarking of Internal Approaches
EBA published an update to the implementing technical standards on benchmarking of internal approaches. The updated implementing technical standards include all benchmarking portfolios and metrics that will be used for the 2022 exercise. The benchmarking exercise is an essential supervisory tool to enhance the quality of internal models, which is particularly important in a stressed economic situation. The exercise covers approved internal approaches used for own funds requirements calculation of credit and market risks as well as internal models used for IFRS 9. The draft implementing technical standards will be submitted to EC for endorsement before being published in the Official Journal of the European Union.
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 risk parameters of individual institutions can be compared. These benchmark values are based on data submitted by institutions as laid out in the Commission Implementing Regulation 2016/2070, where the benchmarking portfolios, templates, and definitions to be used as part of the annual benchmarking exercises are specified in more detail. For the 2022 benchmarking exercise, the following changes to the reporting templates and instructions have been deemed necessary:
- For the market risk benchmarking, the framework is extended to allow the collection of new information, particularly for the collection of sensitivities-based measures. The inclusion of sensitivities will prepare the exercise for the new Fundamental Review of the Trading Book (FRTB) framework for determining capital requirements for market risk in EU. In addition, some instruments have been updated and clarified, while the overall composition of the portfolio has marginally changed with respect to the 2021 exercise. Moreover, the submission deadlines for initial market valuation have been extended by additional two weeks while the submission deadlines for the risk measures have been extended by one week.
- For the credit risk templates, a limited number of additional data fields was added to understand the level of conservatism incorporated in the risk estimates (Probability of Default and Loss Given Default) and the resulting risk-weighted assets via supervisory imposed add-ons and via the margin of conservatism. In addition, some enhancements were made for the existing data requirements.
- For the IFRS 9 templates, a limited number of additional data fields has been included to collect information on additional IFRS 9 parameters—in particular the Loss Given Default, in line with the staggered approach communicated in the IFRS 9 roadmap from July 2019.
The updates also include changes and clarifications EBA has introduced based on the consultation paper on the implementing technical standards amending the Commission Implementing Regulation 2016/2070 with regard to benchmarking of internal models, which was published on December 17, 2020. The Annexes presented in the draft implementing technical standards replace, or are added to, the existing set of templates to create a consolidated version of the updated draft implementing technical standards package.
Related Links
Keywords: Europe, EU, Banking, Implementing Technical Standards, Benchmarking, Own Funds, Market Risk, Credit Risk, IFRS 9, CRD, Reporting, Probability of Default, Loss Given Default, Internal Models, Regulatory Capital, 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.
Previous Article
EBA Supports Extension of Tighter Large Exposure Limits in FranceRelated 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.