EBA consults on technical standards on supervisory benchmarking of internal approaches for calculating capital requirements

The European Banking Authority (EBA) launched today a consultation on draft Implementing Technical Standards (ITS) and Regulatory Technical Standards (RTS) aimed at specifying the EU framework for the conduct of annual supervisory benchmarking of internal approaches for calculating own funds requirements for credit and market risk exposures (RWAs). The consultation runs until 19 August 2014.

These ITS and RTS follow the significant work that the EBA conducted on the comparability of capital requirements for internal ratings-based approach (IRBA) for credit risk and market internal risk models, including a series of benchmarking exercises run in 2013. This work has led to a better understanding of the drivers behind differences observed in RWAs across EU institutions. The future benchmarking exercises, as outlined in this consultation paper, will continue to play a crucial role in improving comparability of capital requirements calculated using internal approaches.

These ITS provide (i) a set of benchmark portfolios for credit and market risk based on recent EBA experiences; (ii)  templates, definitions and IT solutions that EU banks will be asked to use when reporting the results of their calculations of capital requirements.

These RTS define (i) the common general benchmarks for credit and market portfolios to be used by the competent authorities in the assessment of the quality of the internal approaches. These benchmarks aim at detecting significant differences in RWAs, as well as significant and systematic underestimation of capital requirements; (ii) the procedures for sharing the results of the assessment of internal approaches carried out by each competent authority with both the EBA and the other relevant competent authorities.

Consultation process

All contributions received will be published following the close of the consultation, unless requested otherwise.

A public hearing will take place at the EBA premises on 16 June 2014 from 14:00 to 18:00 hours UK time.

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 19 August 2014.

Legal basis and next steps

The proposed draft ITS and RTS have been developed on the basis of Art. 78 of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (Capital Requirements Directive - CRD).

Considering the importance of implementing a rigorous benchmarking framework, the European Commission agreed to the EBA's request for a postponement of the deadline for the submission of the ITS and RTS from 31 December 2013 to 30 September 2014.

In the last quarter of 2014, the EBA is planning to run another benchmarking exercise for credit and market risk ahead of the adoption of these technical standards.