The ECB guide to internal models will help achieve a major objective of ECB Banking Supervision: ensuring that high supervisory standards are applied consistently for directly supervised banks and that the rules regarding the use of internal models, laid down in the Capital Requirements Regulation, are understood in a consistent manner. The guide provides transparency on how the ECB aims to ensure a uniform understanding of the most significant aspects of the applicable regulation governing the internal models used to compute own funds requirements for credit, market and counterparty credit risk by the banks directly supervised by the ECB.
The general topics chapter of the ECB guide to internal models is intended to inform institutions, in a transparent way, of how the ECB aims to ensure a uniform understanding of the general (i.e. non-model-specific) topics relating to internal models (e.g. internal model governance, internal validation, internal audit). In this regard, the ECB will take each institution’s particular circumstances into due consideration when applying the relevant framework. In line with the selection of general topics for harmonisation under the targeted review of internal models (TRIM), the principles presented in this chapter relate, in particular, to the internal ratings-based approach.
The ECB guide to internal models is a refinement of the TRIM guide that was made available on 28 February 2017 for early industry feedback. The revised version benefits from the comments received from institutions. It also takes into account the outcomes of the reviews (questionnaire and on-site supervisory visits) and horizontal analyses of general topics performed in the context of the TRIM project. The version of the guide that is currently being consulted on will serve as a reference for future internal models investigations, including beyond the scope of TRIM. It will be updated as appropriate to reflect changing regulatory requirements and the supervisory stances on internal models.
The general topics chapter of the ECB guide to internal models retains the core elements of the preliminary TRIM guide and provides more detail in those areas where clarification was required (as reflected by the industry feedback on the TRIM guide).
The section on data quality that was included in the general topics chapter of the TRIM guide (under section 9) has been removed from the general topics chapter of the ECB guide to internal models. It will subsequently be submitted for consultation with the other parts of the guide, in order to benefit from the horizontal analyses of the outcome of TRIM on-site investigations.
Additional chapters of the guide will be published and consulted on at a later stage. They will focus on providing transparency on how the ECB understands the relevant rules related to credit, market and counterparty credit risk.
Yes. Some parts of the guide may require revision or expansion if the ECB needs to provide additional clarification on how it ensures that the relevant legal framework is applied consistently.
One major objective of ECB Banking Supervision is to ensure the consistent application of high supervisory standards and practices across the euro area. Therefore, some principles presented in the guide may differ from, or add to, practices and stances applied before the Single Supervisory Mechanism (SSM) was set up. However, when the ECB applies the relevant rules, the specific circumstances and features of each institution will be taken into due consideration. It is worth noting in this respect that the contents of the guide have been developed in close cooperation with the National Competent Authorities (NCAs).