Response to discussion on the simplification and assessment of the credit risk framework
Q1. For the purpose of reporting under CRR Article 430a, which definition of loss should be used?
NA
Q2. Should the loss data (CRR Article 430a) be used for the assessment of RWs of real estate exposures under CRR Article 126(4) and CRR Article 465(11)?
NA
Q3. Which elements of the real estate framework should be further simplified?
NA
Q4. Which other clarifications do you consider necessary to apply the new ECAI framework?
Fitch Ratings agrees with the EBA’s pragmatic view that stand-alone credit ratings issued by CRAs (i.e., not ‘derived’ by institutions) and which do not include assumptions of government support may be used, provided they are fully compatible with rating scales assessed by the EBA in previous mapping exercises. Fitch Ratings introduced “ex-government support” (“XGS”) bank credit ratings in April 2023 in order to facilitate banks’ Basel III implementation preparations, and these ratings are fully compatible with existing rating scales assessed by the EBA.
Fitch Ratings has received a number of queries on useability of “ex government support ratings” in the EU from market participants seeking to progress their Basel III implementation preparations. Consequently, Fitch Ratings believes the EBA’s proposed approach would provide useful clarity to users of ratings, and no further clarifications from the EBA are necessary.
Q5. Should the consolidation of regulatory products for credit risk be a priority or should the regulatory stability be preferable instead? Have you identified any redundancies in IRB products?
NA
Q6. Do you consider that the integration of environmental and social risks into the credit risk framework could be further enhanced without undermining its simplicity? Which areas, if any, would you prioritise for further work or clarification?
NA
Q7. Which requirements should apply in relation to the measurement of the performance of continuous models (e.g. Back-testing)? How could testing requirements be facilitated and enhanced for continuous models that are compliant with CRR, Part three, Title II, Chapter 3, Section 6 (Requirements for the IRB approach)?
NA
Q8. Which requirements should apply in the application phase of continuous models (e.g. overrides)?
NA
Q9. Which challenges have you encountered in implementing the new CRR definition of facility?
NA
Q10. Should a consistent and single facility definition be applied across all risk parameters?
NA
Q11. Are adjustments proposed in the representativeness requirement for the CCF parameter also suited for PD and LGD risk parameters? Which amendments would be needed to accommodate PD and LGD specificities?
NA
Q12: Do you consider further simplification of the representativeness requirement, as proposed for the CCF parameter, as necessary for PD and LGD and if so, what kind of simplification?
NA
Q13. Should these simplifications be pursued? Do you have any preferred approaches with respect to these simplifications?
NA
Q14. Do you have any comments and suggestions with reference to the calibration of the fall back approaches?
NA
Q15. Do you see other potential simplification areas where the modelling burden is not commensurate to the gain in risk sensitivity?
NA
Q16. What do you perceive as challenges in your capacity to collect appropriate data, in particular in relation to indirect costs?
NA
Q17. Do you agree with the approach proposed by EBA? Do you see further measures as necessary?
NA