On 31 January 2020, the European Banking Authority (EBA) published two reports on the consistency of risk weighted assets across all EU institutions authorised to use internal approaches for the calculation of capital requirements.

The reports cover credit risk for high and low default portfolios, as well as market risk. The credit risk report examines the different drivers leading to the observed dispersion across banks’ models. The market risk report presents the results of the 2019 supervisory benchmarking and summarises the conclusions drawn from a hypothetical portfolio exercise that was conducted by the EBA during 2018/19.

In terms of the credit risk exercise, the results are broadly in line with previous exercises, with the results being broadly in line with previous exercises, a risk weight deviation on low default portfolios below 10 percentage points (common counterparty analysis) and estimates for high default portfolios generally on the conservative side when compared with empirical observed metrics (backtesting analysis).

The 2018/19 market risk exercise was the first exercise with a new set of hypothetical instruments and portfolios. The new set of instruments mostly consist of vanilla instruments and was more extensive in terms of the number of instruments to model with respect to the three previous benchmarking exercises. Compared to previous exercises, the 2018/19 analysis shows a substantial reduction in terms of dispersion in the initial market valuation and some reduction in risk measures, especially for the aggregated portfolios.