EBA Data Collection: Benchmarking Standards
EBA's final 2024 ITS draft includes accounting metrics for high default portfolios and updated market risk templates focusing on DRC and RRAO. The benchmark exercise monitors fund requirement variability and regulatory impacts on capital and solvency in the EU.
EBA Releases Final Draft Technical Standards for 2024 Data Collection, Impacting Solvency Ratios
The European Banking Authority (EBA) recently published its final draft Implementing Technical Standards (ITS) for benchmarking credit risk, market risk, and IFRS9 models for the 2024 exercise. The most notable change compared to the 2023 data collection is the inclusion of accounting metrics (IFRS9) for high default portfolios (HDP). New templates have been added for market risk, focusing on the Default Risk Charge (DRC) and the Residual Risk AddOn (RRAO). Minor changes have been made to credit risk. The EBA's benchmarking exercise aims to consistently monitor the variability of own funds requirements resulting from internal models and the impact of supervisory and regulatory measures on capital requirements and solvency ratios within the EU. This exercise serves as the foundation for both supervisory assessment and horizontal analysis of internal model outcomes.
ITS for 2024 Benchmarking Exercise: Implications for Banks in the EU
The European Banking Authority (EBA) recently published its final draft Implementing Technical Standards (ITS) for benchmarking credit risk, market risk, and IFRS9 models for the 2024 exercise. This article is relevant to banks operating in the European Union (EU) and falls under the jurisdiction of EU regulations.
The final draft ITS introduces significant changes compared to the 2023 data collection. The inclusion of IFRS9 accounting metrics for high default portfolios (HDP) could lead to increased scrutiny of banks' internal models and their impact on solvency ratios. This change aims to enhance transparency and ensure more accurate and consistent reporting of solvency ratios across the industry.
Additionally, new templates have been added for market risk, specifically focusing on the Default Risk Charge (DRC) and the Residual Risk AddOn (RRAO). These templates aim to provide better monitoring of banks' exposure to default and residual risks. Banks may need to make adjustments to their risk management strategies to maintain or improve their solvency ratios.
Minor changes have also been made to credit risk benchmarking, aiming to ensure that credit risk and IFRS9 templates align with common portfolios. This will contribute to streamlined and consistent reporting, enabling supervisors to assess banks' internal models and their impact on solvency ratios more effectively.
The EBA's benchmarking exercise serves as the foundation for supervisory assessment and horizontal analysis of internal model outcomes. It aims to consistently monitor the variability of own funds requirements resulting from internal models and the impact of supervisory and regulatory measures on capital requirements and solvency ratios within the EU.
To stay compliant with the EBA's final draft ITS, banks should consider mitigating efforts such as reviewing and adjusting their internal models to incorporate the IFRS9 accounting metrics for HDPs. Enhancing risk management strategies to address the identified default and residual risks highlighted by the new market risk templates is also crucial. Banks should ensure accurate and consistent reporting of solvency ratios through streamlined processes and collaborate with regulatory authorities to seek guidance and clarify any uncertainties.
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