The EBA publishes report on Member States’ reliance on external credit ratings

17 May 2021

The European Banking Authority (EBA) published today a Report, which analyses the extent to which Member States' national law relies on external credit ratings. Based on a survey among EU banking supervisors, no mechanistic reliance on external credit ratings was identified. Furthermore, using EBA supervisory reporting data, the Report shows that the use of external credit ratings in the calculation of risk-weighted exposure amounts (RWEA) under the standardised approach, and under the External Ratings Based Approach (SEC-ERBA) of the securitisation framework is limited. The EBA’s assessment will ensure a comprehensive overview of the reliance on ratings for regulatory purposes ahead of the implementation of Basel III reforms into the EU legislative framework.

Based on the quantitative evidence collected, the EBA recommends to remove the mandate laid down in Article 161 (3) of the Capital Requirements Directive (CRD) to publish bi-annually a Report on the extent to which Member State’s law refers to external credit ratings, and how Competent Authorities are encouraging internal credit risk assessment capacity, promoting internal models for own funds requirements, and reducing reliance on external credit ratings . The recommendation is made on the basis of the limited references to external credit ratings found in Member States’ national law, together with developments in international regulation, namely  the provisions to reduce mechanistic reliance on external credit ratings in the standardised approach of the credit risk framework in the final Basel III reforms, and in the new securitisation framework introduced in the Capital Requirements Regulation (CRR). In addition, the Report stresses that the “enhanced due diligence” introduced in the final Basel III framework should be implemented in the EU framework.

To collect the relevant information, in December 2020, the EBA launched a survey among EU banking supervisors, which showed that Member States’ national law does not introduce mechanistic references to external credit ratings, and that the CRD-related requirements to reduce reliance have been transposed into national legislation.

Legal basis

The Report has been developed in accordance with Article 161 (3) of the CRD, which requires the EBA to analyse the extent to which Member States' national law refers to external credit ratings and how Competent Authorities are encouraging internal credit risk assessment capacity, promoting internal models for own funds requirements whenever proportional, and reducing reliance on external credit ratings.

 

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Franca Rosa Congiu

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