EBA欧洲银行-Policy-Advice-on-Basel-III-reforms-Credit-Risk_209页_4mb

Summary of EBA Policy Advice on the Basel III Reforms: Credit Risk

Core Content

The European Banking Authority (EBA) has issued comprehensive policy advice on the implementation of the Basel III credit risk reforms in the European Union (EU). The report evaluates both the Standardised Approach (SA) and the Internal Ratings Based (IRB) Approach, identifying key issues, recommendations, and the implications of the reforms on EU banks.

Main Points

1. Introduction and Context

• The EBA supports the final Basel III credit risk framework, which aims to enhance risk sensitivity and ensure a more reliable prudential regulation.
• The reforms are a response to the financial crisis, addressing the limitations of the previous models and ensuring a more credible and consistent approach.
• The EBA emphasizes the importance of aligning the EU's implementation with the Basel III framework while considering EU-specific practices and conditions.

2. EU-Specific SA-IRB Consistency Issues

• SME Definition: The EBA recommends aligning the SME definition across both SA and IRB approaches.
• SME Supporting Factor: The existing EU supporting factor for SMEs should be removed due to changes in the Basel III framework.
• Infrastructure Lending Supporting Factor: Similar to SMEs, the supporting factor for infrastructure lending is to be removed.
• Equity Exposures: The current treatment of equity exposures under Article 49 of the CRR should be maintained.
• Retail Exposures: The EBA recommends using the EUR 1 million threshold for retail definition and implementing the transactors notion.
• Commitment Definition: A clear definition of "commitment" is needed to avoid inconsistencies in the application of the SA.

3. Standardised Approach (SA)

• The SA assigns risk weights (RWs) based on exposure classes, with detailed rules in the CRR.
• Key recommendations include:
  • Enhanced Due Diligence: Continued use of external ratings to ensure risk sensitivity.
  • Exposures to PSEs: Clarifications on the reciprocity of treatment in Article 116(4) of the CRR.
  • Exposures to Banks: Recommendations to retain the current treatment of equities under Article 49(4) of the CRR.
  • Specialised Lending: The loan-splitting approach is recommended for residential mortgages.
  • Real Estate Exposures: The loan-splitting approach is preferred over the whole loan approach to increase risk sensitivity.
  • Hard Test: Implementation of the hard test to ensure appropriate risk weighting.
  • Currency Mismatch: A RW multiplier is recommended for exposures with currency mismatch.
  • Off-Balance Sheet Items (OBS): Clarifications and consistent treatment are required.
  • Credit Risk Mitigation (CRM): The CRM framework is to be implemented alongside targeted fixes to improve consistency and reduce conservatism.

4. Internal Ratings Based Approach (IRB)

• The IRB approach allows for more granular and precise risk assessment compared to the SA.
• The EBA recommends the implementation of the final Basel III IRB framework, with the following considerations:
  • Modeling Incentives: The EBA supports the move to less sophisticated modeling for certain portfolios (e.g., low default portfolios).
  • Quantitative Impact Study (QIS): The EBA recommends conducting a QIS to assess the main impacts of the reforms.
  • Risk Parameters:
    • Probability of Default (PD): Floor values for PD are recommended to ensure consistency.
    • Loss Given Default (LGD): Recalibration of regulatory LGD values is advised to reduce conservatism.
    • Collateral Conversion Factor (CCF): New regulatory CCF values are proposed, along with floors to ensure consistency.
  • Sovereign Exposures: Clarifications are needed to ensure consistent treatment of sovereigns, regional governments, and local authorities.
  • Effective Maturity: More flexibility is recommended for the use of effective and regulatory maturities.
  • Definitions: New and clearer definitions are proposed to improve the application of the IRB framework.
  • Covered Bonds and HVCRE: The current EU treatment of covered bonds and High Volatility Commercial Real Estate (HVCRE) should be retained.

Key Recommendations

• Joint Recommendations for SA and IRB:

  • Align the definition of SMEs across both approaches.
  • Remove EU-specific supporting factors for SMEs and infrastructure lending.
  • Maintain the current treatment of equities under Article 49(4) of the CRR.

• SA-Specific Recommendations:

  • Continue the use of the external ratings approach to ensure risk sensitivity.
  • Retain the loan-splitting approach for residential mortgages.
  • Implement the hard test for real estate exposures.
  • Ensure consistency in the treatment of PSEs and OBS items.

• IRB-Specific Recommendations:

  • Retain the current EU treatment of covered bonds and HVCRE.
  • Conduct a QIS to assess the impacts of the reforms.
  • Introduce floors for PD and LGD to ensure consistency.
  • Provide flexibility in the use of effective and regulatory maturities.
  • Improve clarity and definitions in the IRB framework.

Conclusion

The EBA concludes that the final Basel III credit risk framework is suitable for implementation in the EU, provided that certain adjustments are made to ensure consistency, reduce conservatism, and align with existing EU practices. The recommendations cover both the SA and IRB approaches, aiming to enhance the reliability, simplicity, and risk sensitivity of the credit risk framework in the EU context.