ECB guide details internal model supervisory expectations
The European Central Bank (ECB) has updated its guide on internal models, providing transparency on how it assesses compliance with prudential requirements for credit, market, and counterparty credit risk. The guide outlines supervisory expectations for banks using these models.
Navigating prudential model requirements
The European Central Bank's guide on internal models provides transparency on how the ECB assesses compliance with prudential requirements for credit, market, and counterparty credit risk.
Based on Articles 143, 283, and 325 of Regulation (EU) No 575/2013 (CRR), as amended by CRR2 and CRR3, the guide outlines the ECB's understanding of these rules and its intended application during supervisory assessments.
It serves as an internal document for supervisory teams, ensuring a common and consistent approach to internal models across institutions.
The guide clarifies that it does not supersede existing EU or national law and is without prejudice to policy stances taken by the European Banking Authority (EBA).
It is a crucial reference for banks seeking permission to use internal models for own funds requirements.
Adapting to CRR3 and FRTB changes
This latest version of the guide, 4.1, incorporates significant updates to reflect changes in regulatory requirements and supervisory experience.
Notably, it includes two distinct market risk chapters: one for CRR2 models and a new one explaining the ECB's understanding of CRR3 provisions on market risk models, reflecting draft Fundamental Review of the Trading Book (FRTB) supervisory expectations.
This dual approach addresses the postponed application date of Basel III FRTB standards.
Furthermore, all content related to the estimation of the conversion factor (CCF) has been removed, as the EBA is currently preparing dedicated guidelines on this topic.
Source: ECB guide to internal models
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