EBA欧洲银行-Progress-report-on-IRB-roadmap_29页_972kb

Summary of the EBA IRB Roadmap Progress Report

Introduction

The Internal Ratings-Based (IRB) approach, introduced as part of the Basel II framework in 2006, allows banks to calculate minimum capital requirements based on their internal risk assessments. This approach is more risk-sensitive than the Standardised Approach (SA), but it also leads to variability in own funds requirements due to differing interpretations and model applications. In 2013, the European Banking Authority (EBA) published a report highlighting significant divergences in the use of IRB models, which led to the development of an IRB Roadmap in 2016 aimed at improving robustness, comparability, and transparency of the IRB framework.

The roadmap was structured around three main objectives:

• Reviewing the regulatory setting of the IRB approach
• Ensuring supervisory consistency
• Increasing transparency through standardised templates

The EBA has primarily focused on the first objective, with substantial progress on the second, particularly through benchmarking exercises. The third objective remains ongoing, with the aim of creating standardised and comparable templates for reporting and transparency.

Finalisation of the Regulatory IRB Review – Overview and Timelines

The EBA's regulatory review of the IRB approach was planned in four phases, each addressing specific aspects of the framework:

1. Phase 1: IRB assessment methodology – Final draft RTS published in July 2016, awaiting endorsement by the European Commission.
2. Phase 2: Definition of default – Guidelines and RTS published in September 2016 and October 2017, respectively.
3. Phase 3: Risk parameter estimation and treatment of defaulted assets – Merged into one set of guidelines, with the final version published in November 2017. A separate RTS on economic downturn was developed, published in November 2018, and the GL on downturn LGD estimation was published in March 2019.
4. Phase 4: Credit risk mitigation (CRM) – Includes a report on CRM under the SA and FIRB approach, finalised in Q3 2018, and a GL on CRM under the AIRB approach, planned for Q1 2020.

The original plan aimed for the full implementation of the IRB roadmap by the end of 2020, with all requirements applying from 1 January 2021. However, due to delays and the need to align with the final Basel III framework, the EBA has proposed a postponement of the final implementation deadline to the end of 2021 (application from 1 January 2022), with certain portfolios (e.g., those under the AIRB approach) having a postponed deadline until the end of 2023.

Implementation of the Regulatory Review

The EBA acknowledges that the implementation of the IRB roadmap faces challenges for both institutions and competent authorities (CAs), particularly due to the complexity of the changes and the need to align with the Basel III framework. The following key implementation points are outlined:

• PD, LGD, and conversion factors (CFs) models: These are subject to the end of 2021 deadline, with the exception of certain portfolios eligible for the AIRB approach, which may have a deadline until the end of 2023.
• Default definition and materiality threshold: These were finalised in September 2016 and October 2017, with application starting from 1 January 2021.
• Economic downturn and CRM: The final draft RTS on economic downturn was published in November 2018, and the GL on downturn LGD estimation in March 2019. The CRM framework report was finalised in Q3 2018, and the GL on CRM under the AIRB approach is still in development.

The EBA encourages institutions to follow the original implementation plan where feasible, to ensure even use of resources over the coming years. Article 146 of the CRR allows for temporary non-compliance in specific situations, with further clarifications provided in the final draft RTS on IRB assessment methodology.

Finalisation of the Regulatory Review of the IRB Approach – Achievements and Challenges

The EBA has made significant progress in finalising the regulatory review of the IRB approach, particularly in the areas of assessment methodology, definition of default, and risk parameter estimation.

Achievements

• Assessment methodology RTS: These are the most comprehensive regulatory products addressing the IRB approach, covering data, models, processes, IT systems, and governance.
• Definition of default: The EBA has harmonised the definition of default across the EU, providing clarity on how default is identified, including the days past due criterion, unlikelihood to pay, and treatment in banking groups.
• Risk parameter estimation: The merged GL on PD, LGD, and treatment of defaulted exposures provide detailed guidance on estimation methods and the application of parameters to current exposures.

Challenges

• Delays in implementation: The original plan faced delays, particularly in the development of the economic downturn RTS, due to the need for additional consultations and the alignment with the final Basel III framework.
• Complexity of the IRB framework: The flexibility and complexity of the IRB approach have led to variability in own funds requirements, which the EBA aims to address through harmonisation and standardisation.
• Resource constraints: Both institutions and CAs face challenges in implementing the changes due to the need for significant model redevelopment and assessment efforts.

Conclusion

The EBA has finalised the regulatory review of the IRB approach as originally planned, with the publication of the final draft RTS on economic downturn and the GL on downturn LGD estimation. The roadmap has focused on improving consistency, comparability, and transparency in the IRB framework, while also considering the impact of the final Basel III framework.

Despite delays, the EBA remains committed to the implementation of the changes by the end of 2021, with certain portfolios eligible for the AIRB approach having a later deadline of 2023. The EBA will continue to monitor the effects of the review and intends to finalise the GL on CRM under the AIRB approach in Q1 2020.

The roadmap reflects a balanced approach between regulatory oversight and industry needs, aiming to maintain the risk-sensitive nature of the IRB framework while ensuring greater harmonisation and transparency in its application across the EU.