Featured Product

    EBA Reports Examine Consistency of Internal Model Outcomes in 2020

    March 15, 2021

    EBA published two reports that examine the consistency of risk-weighted assets (RWAs) across EU institutions authorized to use internal approaches for the calculation of capital requirements for 2020. The reports analyze the variability observed in risk-weighted assets for market risk and credit risk, including high- and low-default portfolios. EBA also published a document (Annex) that presents the methodological choices and caveats on the credit risk benchmarking exercise analysis. The results of the benchmarking exercise on credit and market risks confirm that the majority of risk-weight variability can be explained by fundamentals.

    The report on credit risk benchmarking exercise presents key results of the 2020 supervisory benchmarking exercise for both high- and low-default portfolios. The results of the 2020 regular benchmarking analyses for credit risk are largely comparable to those of the last exercises, which is an indication of the general stability of bank portfolios and internal model outcomes. As in the past years, the observed variability of institutions’ overall internal ratings-based, or IRB, approach exposure can mostly be explained by the different share of defaulted and non-defaulted exposures and by the portfolio mix of the individual institutions. For both high- and low-default portfolios, nearly 60% of the total variability is explained via these two drivers. For high-default portfolios, the variability of risk-weights is mostly in line with the intention of the internal ratings-based approach. For the low-default portfolios, analysis at the counterparty level shows a slight decrease of the observed overall risk-weight variability for large corporates under the advanced internal ratings-based approach, but it remained mostly stable for the other analyzed LDP exposures. For the first time, the report also includes time an analysis on the newly introduced portfolios on specialized lending exposures. This analysis reveals that variability of risk-weighted assets calculated under the internal ratings-based approach for specialized lending exposures stems primarily from an unequal distribution across banks in terms of type and volume of investment into these exposures. 

    The report on market risk benchmarking exercise presents the results of the 2020 supervisory benchmarking exercise pursuant to the Capital Requirements Directive (CRD) and the related regulatory and implementing technical standards that define the scope, procedures, and portfolios for benchmarking internal models for market risk. The 2020 analysis showed a reduction in the dispersion in the initial market valuation with respect to the 2019 exercises with regard to the equity, interest rate, and credit spread asset classes. This improvement was expected and reflects the instruments’ simplification as applied in the 2019 exercise. The 2020 exercise considered the same instruments applied in 2019, which are mostly plain vanilla financial instruments. However, at the portfolio level, the variability increased with the risk metric’s complexity while stressed value-at-risk, incremental risk charge, and all price risk showed higher levels of dispersion. Across asset classes, except for the commodity exposures, the overall variability for value at risk is lower than the observed variability for stressed value-at-risk. More complex measures such as incremental risk charge and all price risk show a higher level of dispersion. Although the majority of the causes were identified and actions were put in place to reduce any unwanted variability of the hypothetical risk-weighted assets, the effectiveness of these actions can be evaluated only with ongoing analysis.

     

    Related Links

    Keywords: Europe, EU, Banking, Credit Risk, Market Risk, Basel, RWA, 2020 Benchmarking Exercise, Regulatory Capital, Internal Models, EBA

    Featured Experts
    Related Articles
    News

    UK Government to Set Out Rules on Wind-down of Critical Benchmarks

    HM Treasury notified that, after considering all responses, the government intends to bring forward further legislation, when the Parliamentary time allows, to address issues identified in the consultation on supporting the wind-down of critical benchmarks.

    May 07, 2021 WebPage Regulatory News
    News

    EIOPA Launches Stress Test for Insurance Sector in EU

    EIOPA launched the 2021 stress test for the insurance sector in EU.

    May 07, 2021 WebPage Regulatory News
    News

    UK Authorities Publish Third Edition of Regulatory Initiatives Grid

    UK authorities jointly published the third edition of Regulatory Initiatives Grid setting out the planned regulatory initiatives for the next 24 months.

    May 07, 2021 WebPage Regulatory News
    News

    EC Consults on Regulation on Non-Financial Sustainability Disclosures

    EC is requesting feedback on the proposed Commission Delegated Regulation on the content, methodology, and presentation of information that large financial and non-financial undertakings should disclose about their environmentally sustainable economic activities under the Taxonomy Regulation.

    May 07, 2021 WebPage Regulatory News
    News

    OSFI Outlines Prudential Policy Priorities for Coming Months

    OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    BIS Announces TechSprint on Innovative Green Finance Solutions

    Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.

    May 06, 2021 WebPage Regulatory News
    News

    ACPR Publishes Version 1.0.0 of RUBA Taxonomy

    ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    EBA Proposed Regulatory Standards for Central Database on AML/CFT

    EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.

    May 06, 2021 WebPage Regulatory News
    News

    ECB Responds to EC Consultation on Crisis Management Framework

    ECB published its response to the targeted EC consultation on the review of the bank crisis management and deposit insurance framework in EU.

    May 06, 2021 WebPage Regulatory News
    News

    BCBS, CPMI, and IOSCO to Survey Market Participants on Margin Calls

    BCBS, CPMI, and IOSCO (the Committees) are inviting entities that participate in market infrastructures and securities markets through an intermediary as well as non-bank intermediaries to complete voluntary surveys on the use of margin calls.

    May 05, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6942