02 March 2015
The European Banking Authority (EBA) published a set of papers for benchmarking the internal approaches that EU institutions use to calculate own-funds requirements for credit and market risk exposures. The EBA final draft Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) specify in detail the framework for EU institutions and competent authorities to carry out the annual supervisory benchmarking foreseen by the Capital Requirements Directive (CRD IV). The EBA also issued its response to a call for advice by the European Commission's on the benchmarking process. This work is part of the EBA's efforts to address possible inconsistencies in the calculation of risk weighted assets (RWAs) across the EU Single Market and to ultimately restore confidence in EU banks' capital and internal models.
The EBA standards define the benchmarking portfolios as well as the methodology that competent authorities across the EU shall use in order to assess the quality of institutions' internal approaches for capital calculation purposes.
In particular, the draft implementing technical standards (ITS) specify the benchmarking portfolios as well as the templates, definitions and IT solutions that should be applied in the benchmarking exercise for market and credit risk. The draft regulatory technical standards (RTS) specify the procedures for sharing the assessments between the competent authorities and with the EBA as well as the standards that will be used by competent authorities to assess the internal approaches banks apply to calculate their capital requirements for market and credit risk.
The regular benchmarking exercises will allow an assessment of differences in RWAs across EU institutions and the identification of potential underestimation of capital requirements.
These standards build on the work carried out by the EBA on the comparability of capital requirements for credit and market risks in the past years and aim at minimising the burden for banks and competent authorities.
Finally, the EBA is also publishing its response to a call for advice by the European Commission's on the benchmarking process. In its response to the Commission, the EBA has provided a meaningful although preliminary assessment of different issues related to the functioning of the benchmarking process, such as the usefulness of these kind of exercises, the appropriateness of its scope and frequency, the suitability of the current legal setting, the need to introduce proportionality, or the usefulness of extending the scope of the exercise to include the advanced measurement approaches (AMA) for operational risk.
Legal basis and next steps
These final draft RTS and ITS have been developed in accordance with Article 78 of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 (Capital Requirements Directive or CRD IV) on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC.
The first benchmarking exercise conducted under the ITS and RTS framework will be based on data referred to Q4 2015 observations. Institutions shall report the information by 11 April 2016.