Featured Product

    EBA Updates the 2021 Benchmarking Package to Include IFRS 9 Template

    May 04, 2020

    EBA updated the implementing technical standards on benchmarking of internal approaches of banks. The key update is the inclusion of the IFRS 9 template. The updated implementing technical standards include all benchmarking portfolios that will be used for the 2021 exercise. These revised benchmarking portfolios and reporting requirements are expected to be applicable to the submission of initial market valuation data in the third quarter of 2020 and of other market and credit risk data in 2021 (with a reference date of December 31, 2020).

    For the 2021 benchmarking exercise, changes to the reporting templates and instructions are necessary to integrate the subset of templates dedicated to the benchmarking of IFRS 9. The collection of quantitative data on the IFRS 9 parameters will contribute to gathering a better understanding of the different methodologies, models, inputs, and scenarios, which could lead to material inconsistencies in expected credit loss outcomes and affect own funds and regulatory ratios. The initial focus of the analysis is on the probability of default parameter, particularly the following three aspects:

    • The analysis of the variability of the probability of default parameter estimated over a default horizon of 12 months
    • Variability of the macroeconomic forecasts and the interaction between the lifetime probability of default curve and the macro-economic scenarios used for determining the expected credit loss
    • Variability of practices in the assessment of significant increases in credit risk, also known as SICR

    On the credit risk side, neither new portfolios nor new data points have been added compared to the 2020 exercise. However, some marginal changes have been applied in the credit risk portfolio annex. It now includes counterparties treated under the standardized approach, which are reported in the IFRS 9 template. Institutions should report the hypothetical risk-weighted assets calculated under the standardized approach for low-default portfolios and the hypothetical risk-weighted asset based on empirical default rates at the rating split level. For the market risk benchmarking, some instruments are updated and clarified but the overall composition of the portfolio did not change with respect to the 2020 exercise. The update also includes changes and clarifications that the EBA introduced based on the consultation paper that was published on December 17, 2019. 

    EBA believes that the usefulness of this exercise increased, under the current circumstances. From a supervisory perspective, it will help maintain the high quality of internal models. From the regulatory point of view, it will continue to be used to monitor the behavior and sensitivity of models to a stressed economic situation. The draft implementing technical standards will be submitted to EC for endorsement before being published in the Official Journal of the European Union and will apply 20 days after publication in the Official Journal. The supporting technical package consisting of the data point model (DPM), the validation rules, and the taxonomy are being prepared simultaneously and will be published at a later stage.

     

    Related Links

    Keywords: Europe, EU, Banking, Implementing Technical Standards, Benchmarking Exercise, CRD IV, Credit Risk, IFRS 9, Expected Credit Loss, Internal Models, Reporting, Market Risk, EBA

    Featured Experts
    Related Articles
    News

    Regulators Fine Goldman Sachs for Risk Management Failures

    FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).

    October 23, 2020 WebPage Regulatory News
    News

    Canada Hosts International Conference of Banking Supervisors

    BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.

    October 22, 2020 WebPage Regulatory News
    News

    FCA Proposes More Measures to Help Insurance Customers Amid Crisis

    FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.

    October 21, 2020 WebPage Regulatory News
    News

    EBA Issues Opinion to Address Risk Stemming from Legacy Instruments

    EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.

    October 21, 2020 WebPage Regulatory News
    News

    ESRB Publishes Non-Bank Financial Intermediation Risk Monitor for 2020

    ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).

    October 21, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Policy Statement Amending Benchmarks Regulation

    HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.

    October 21, 2020 WebPage Regulatory News
    News

    APRA Initiates Action Against a Bank for Liquidity Compliance Breach

    APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.

    October 21, 2020 WebPage Regulatory News
    News

    PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2

    PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule to Reduce Impact of Large Bank Failures

    US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule on Net Stable Funding Ratio Requirements

    US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.

    October 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6004