Question ID
2015_2058
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
363
Paragraph
3
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) No 529/2014 - RTS on materiality of extensions and changes in the advanced approaches (IRB and AMA)
Article/Paragraph
Art. 7a
Name of institution / submitter
European Central Bank
Country of incorporation / residence
EU
Type of submitter
Competent authority
Subject matter
Number of distinct calculations required to assess materiality of changes to internal IRC models
Question

Regulation (EU) No 529/2014 governs the assessment of materiality of changes and extensions to internal approaches for credit, market and operational risk. According to this regulation a change to the incremental default and migration risk charge (IRC) is to be considered material if within 15 consecutive business days (Article 7a(4)(a)) the thresholds of Article 7a(1)(c)(ii) are breached at least once. According to Article 374(1) CRR institutions may compute the IRC only weekly. Does this mean that?

Background on the question

At ECB, we received a series of requests for changes to IMA in market risk. We were asked about the requirements to assess the materiality, w.r.t. the required frequency of parallel calculations for IRC models, in particular for banks that compute their IRC only on a weekly basis.

Submission date
Final publishing date
Final answer

Yes, in case an institution computes the incremental default and migration risk charge (IRC) weekly, in accordance with Regulation (EU) No 529/2014, three calculations are enough to decide upon the materiality of changes to IRC model. Moreover, in line with EBA/GL/2012/3 paragraph 29(2): "the institution should be able to prove that, on the day of the week chosen for the IRC calculation, its portfolio is representative of the portfolio held during the week and that the chosen portfolio does not lead to a systematic underestimation of the IRC numbers when computed weekly".

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.