Banks may use internal models to estimate their own funds requirements – i.e. the minimum amount of capital they must hold by law – provided they have prior authorisation from the competent authority. Within the Single Supervisory Mechanism (SSM), the ECB is the competent authority for all banks classified as significant institutions, while banks classified as less significant institutions are directly supervised by the national competent authorities.
The supervision of internal models used by significant institutions is based on current applicable EU and national law, including:
It relies on three pillars: internal model investigations (IMIs), ongoing model monitoring (OMM) and the targeted review of internal models (TRIM).