On 7 September 2018, the European Central Bank (ECB) published a draft version of the risk-type-specific chapters for the ECB guide to internal models (the Guide) for consultation. The CRR permits credit institutions to use internal models for risk when the requirements set out in the corresponding chapters of the CRR are met. The Guide is intended for the use of supervisory teams to promote a consistent approach to matters relating to internal models, and is not intended to affect existing applicable EU and national law.
The ECB is seeking views on its draft chapters that cover:
- credit risk – concerning how the ECB understands a number of topics related to internal models used for the internal ratings-based approach;
- market risk – focusing on certain modelling aspects relating to, for example, regulatory back-testing of VaR models; VaR and stressed VaR methodologies; the incremental default and migration risk charge methodology; and
- counterparty credit risk – concerning topics related to the principles defined for the Internal Model Method which have been assessed in the targeted review of internal models.
The deadline for responses to the consultation is 7 November 2018.