On 22 June 2023, the European Central Bank (ECB) launched a consultation on its revised guide to internal models.
The ECB’s guide to internal models provides transparency on how the ECB understands and applies Articles 143, 283 and 363 of the Capital Requirements Regulation (CRR). These Articles require the ECB to grant permission to use internal models for credit risk, counterparty credit risk and market risk where the requirements set out in the corresponding chapters of the CRR are met by the institution(s) concerned.
The ECB is updating its guide to reflect updates to the EU legal framework and builds on its experience in supervising internal models.
The revisions to the guide include:
- Clarification on how banks should go about including material climate-related and environmental risks in their models.
- Clarification for banks that wish to revert to the standardised approach for calculating their risk-weighted assets.
- Updates to the market risk chapter, detailing how to measure default risk in trading book positions.
- Clarification on counterparty credit risk.
The deadline for comments on the consultation is 15 September 2023.
Thereafter the ECB will publish the comments received together with a feedback statement and an updated guide.