Review on the consistency of Risk Weighted Assets

This page presents the EBA's work on the consistency of Risk Weighted Assets (RWAs) in the EU banking sector. The objective is to identify any material differences in RWA outcomes, to understand the sources of such differences and, if need be, to formulate the necessary policy solutions to enhance convergence between banks and to improve disclosure.

Following the EBA's stress test and recapitalisation exercise, questions were raised as to why there are significant differences in the denominator of the capital ratios (the capital requirements) and material differences in banks' regulatory parameters (probability of default – PD – and loss given default – LGD). While differences in risk parameters and capital requirements between banks are not a sign of inconsistency per se, a substantial divergence may signal that the methodologies used for estimating risk parameters require, in some cases, further analysis.

The overall results of the review on RWAs will inform the work the EBA is conducting in parallel on the validation of internal models, which will also contribute to harmonising supervisory and banks' practices and to enhancing consistency.

A deeper understanding of what drives differences in RWAs will allow the EBA to explore a number of options to address specific concerns. These include using existing CEBS/EBA Guidelines, where appropriate, to enhance convergence in the computation of RWAs, and to improve Pillar 3 disclosures, as well as the validation and ongoing monitoring of internal models.

Related content