The European Banking Authority (EBA) updates its Implementing Technical Standards (ITS) with new internal approaches to benchmarking.
Its update includes all benchmarking portfolios and metrics that will be used for the 2022 exercise.
Benchmarking exercises are crucial as a supervisory tool to improve internal models. In the update, the regulator has outlined approved ways firms can approach funds requirements calculation of credit and market risk, as well as internal models used for IFRS9.
As for market risk benchmarking, the framework now allows for the collection of new information, such as that relating to sensitivity-based-measures within the Fundamental Review of the Trading Book for own funds requirements. It also stated some instruments have been updated and clarified, while the overall composition of the portfolio has marginally changed with respect to the 2021 exercise.
The changes also relate to credit risk, with several new data fields added to requirements. This was done to improve the understanding of conservatism incorporated in the risk estimates and the resulting risk weighted exposures amounts. There were also enhancements made to existing data requirements.
A number of data fields have also been added to requirements for IFRS9 portfolios. This includes information related to loss given default.
Finally, the updates also include changes and clarifications that came following a consultation paper in late 2020.
The EBA believes these changes improve the exercise and will boost the quality of internal models. It will continue to monitor model behaviours.
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