+Contents
---+1. Subject matter
---+2. Institutional scope and level of application
------+1. Competent authorities should require the institutions mentioned in paragraph 2 below to comply …
------+2. These Guidelines should apply to institutions using an Internal Model Approach (IMA) for the …
------+3. The guidelines apply to institutions at the level (solo and/or consolidated) on which the …
---+A. Material scope of application
---+4. Positions subject to calculation of the IRC
------+1. Calculation of the IRC should include all long and short positions subject to a modelled charge …
------+2. In particular, the following positions should be included, if they are part of the trading book …
------+3. Positions resulting from the application of the look-through approach to the shares of …
------+4. The following positions are not considered securitisations and should therefore be included in …
------+5. Positions in defaulted debt held in the trading book should, where material, be included in the …
------+6. The definition of default in the case of paragraph 5 above, should be consistent with the …
---+5. Positions not subject to calculation of the IRC
---+6. Positions in equity and equity derivatives
------+1. Competent authorities may allow the inclusion in the IRC of listed equity positions and …
------+2. If a listed equity or a derivative instrument based on listed equity is included in the …
------+3. Notwithstanding the inclusion in the IRC of positions in listed equity or in derivative …
---+7. Positions in the institution’s own debt
------+1. Long positions in the institution‟s own debt, which may arise from trading or market-making …
------+2. Short positions in the institution‟s own debt, which may arise from the inclusion in the trading …
---+8. Permanent partial use
------+1. Where use is made of the provisions of the CRD on the permanent partial use, the rationale for …
------+2. Permanent partial use of the IRC should not apply to sovereign bonds and derivative products …
---+B. Individual Modelling
---+9. Soundness standard comparable to IRB
---+10. Qualitative criteria
---+11. Source of ratings
------+1. Institutions‟ IRC approaches may rely on either internal or external ratings. Internal ratings …
------+2. Institutions should have procedures in place for inferring a rating for non-rated positions. …
------+3. An institution should have in place a documented hierarchy of sources of ratings for determining …
---+12. Source of PDs and LGDs
------+1. Where an institution has approved PD estimates or PD and LGD, estimates as part of the internal …
------+2. Where , in the latter cases, an institution does not have approved IRB PDs and/or LGDs or where …
------+3. Risk neutral PDs should not be acceptable as estimates of observed (historical) PDs for the …
------+4. Alternatively, the use of PDs and LGDs provided by external sources (e.g. rating agencies) may …
------+5. Institutions should establish a hierarchy ranking their preferred sources for their PDs and …
---+C. Interdependence
---+13. Correlations between default and migration events
---+14. Copula assumptions
---+15. Systemic risk factors
------+1. Although interdependence between issuers is frequently modelled in a similar way to the …
------+2. If the model assumes different liquidity horizons, the evolution of systemic risk factors should …
------+3. The correlation between systemic risk factor(s) and individual issuer‟s „ability-to-pay process‟ …
------+4. Where an institution chooses a parametric formula assuming multiple systemic risk factors, thus …
---+16. Portfolio concentration
------+1. Institutions‟ IRC models should reflect issuer concentrations, which, for example, may arise …
------+2. An institution has to prove specifically that its approach captures portfolio concentrations …
---+17. Migration matrices
------+1. Transition matrices for modelling the rating migration process should be based on historical …
------+2. Separate transition matrices may be applied for specific groups of issuers and specific …
------+3. When default is modelled as an absorbing state, transition matrices should be adjusted to ensure …
------+4. Transition matrices, in general, relate to a one-year horizon. Where shorter horizon matrices …
---+18. Constant level of risk assumption over the one-year capital horizon
------+1. When modelling a constant level of risk over the one-year capital horizon, institutions should …
------+2. When assuming a one-year constant position, which implies not adopting liquidity horizons …
------+3. From a modelling perspective, the constant level of risk may be reflected as the replacement of …
------+4. Modelling a constant level of risk over the one-year capital horizon may be achieved, for …
------+5. Modelling the ageing of positions should not be allowed in IRC modelling, given the expected …
---+19. Hedging
------+1. For the purpose of calculating the IRC, institutions may net long and short positions only when …
------+2. Diversification effects associated with long and short positions may only be recognised by …
------+3. In order to reflect basis risk appropriately, where this risk is material, valuation for the …
------+4. Institutions should reflect the impact within the liquidity horizon of maturity mismatches …
---+D. P&L valuation
---+20. Impact of rating change on market prices
------+1. Institutions may choose any of the approaches available to convert simulated rating variations …
------+2. With regard to point 18 of these Guidelines, an institution may consistently assume an …
------+3. If a simulation, e.g. the asset value process, has not resulted in a changed rating, no change …
------+4. In the case of a rating migration, the variation of market prices should be recalculated. Full …
------+5. Positions migrating into the default state should be valued on the basis of the recovery rate or …
------+6. The model should capture divergences arising from differences in credit event definition …
---+21. Computation of P&L
---+E. Liquidity horizon
---+22. The level at which to define liquidity horizons
------+1. Institutions should define liquidity horizons at a product level rather than on an issuer level. …
------+2. Nevertheless, given the practical issues with an entirely granular assessment of liquidity …
------+3. Institutions should, however, monitor and document the range of products linked to each issuer …
---+23. Key criteria for determining the relevant liquidity horizon
------+1. Institutions should document the criteria used in the determination of the relevant liquidity …
------+2. A wide range of criteria can indicate the liquidity of a position, based on past experience …
------+3. At least one of the criteria considered in the determination of a liquidity horizon should be …
------+4. Positions should be systematically assessed against the criteria chosen and allocated to …
------+5. The approach applied to link a criterion to a longer or shorter liquidity horizon should be …
---+24. Monitoring liquidity horizons - key indicators of the need for review
------+1. Liquidity horizons should be reviewed on a regular basis to ensure they remain appropriate …
------+2. Institutions should consider significant changes in the factors used to determine the liquidity …
------+3. Over time institutions should monitor and enhance the range of factors used to identify …
---+F. General matters
---+25. Validation
------+1. Institutions should apply the validation principles in designing, testing and maintaining IRC …
------+2. The validation process of IRC models should include at least the following principles: i. …
---+26. Use Test
------+1. An institution should document how the IRC process is reported internally, its resulting …
------+2. The procedures that, given the judgement of the IRC, lead to potential appropriate corrective …
------+3. A comparison of the ways internal market risk model outputs are reported, judged, audited and …
---+27. Documentation
------+1. An institution should document its approach to capturing incremental default and migration risks …
------+2. Therefore, the calculation of the risk measures generated by the model and the associated data …
---+28. IRC approaches based on different parameters
------+1. An institution may use an approach to capturing incremental default and migration risks that …
------+2. The institution should provide all necessary information concerning elements of the …
------+3. On the basis of the information provided, the competent national supervisor should decide …
------+4. In order to have its approach recognised as a non-fully compliant IRC approach, an institution …
------+5. The decision to recognise an institution‟s approach as a non-fully compliant approach is made by …
---+29. Frequency of calculation
------+1. Calculation of the IRC should be at least weekly. However, institutions can choose to compute …
------+2. The institution should be able to prove that, on the day of the week chosen for the IRC …
---+30. Date of application
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Contents
III. EBA Guidelines on the IRC ......................................................................................... 7 Title I -Subject matter, Scope and Definitions ..................................................................... 9 1. Subject matter ............................................................................................ 9 2. Scope and level of application ....................................................................... 9 3. Definitions .................................................................................................. 9 Title II - Requirements regarding institutions‟ IRC modelling ........................................ 9 A. Scope of Application ........................................................................................................................ 9 4. Positions subject to calculation of the IRC ....................................................... 9 5. Positions not subject to calculation of IRC ..................................................... 10 6. Positions in equity and equity derivatives ...................................................... 11 7. Positions in the institution‟s own debt .......................................................... 11 8. Permanent partial use ................................................................................ 12 B. Individual Modelling ...................................................................................................................... 12 9. Soundness standard comparable to IRB ....................................................... 12 10. Qualitative criteria ................................................................................... 12 11. Source of ratings ..................................................................................... 12 12. Source of PDs and LGDs ........................................................................... 13 C. Interdependence .............................................................................................................................. 13 13. Correlations between default and migration events ...................................... 13 14. Copula assumptions ................................................................................. 14 15. Systemic risk factors ................................................................................ 14 16. Portfolio concentration ............................................................................. 14 17. Migration matrices ................................................................................... 15 18. Constant level of risk assumption over the one-year capital horizon ............... 15 19. Hedging ................................................................................................. 16 D. P&L valuation .................................................................................................................................... 17 20. Impact of rating change on market prices ................................................... 17 21. Computation of P&L ................................................................................. 18 E. Liquidity horizon .............................................................................................................................. 18 22. The level at which to define liquidity horizons .............................................. 18 23. Key criteriafor determining the relevant liquidity horizon .............................. 19 24. Monitoring liquidity horizons - key indicators of the need for review ............... 20 F. General matters ................................................................................................................................ 20 25. Validation ............................................................................................... 20 26. Use Test ................................................................................................. 21 27. Documentation ........................................................................................ 21 28. IRC approaches based on different parameters ............................................ 22 29. Frequency of calculation ........................................................................... 22 Title III-Final Provisions and Implementation .................................................................... 23 30. Date of application ................................................................................... 23 8 Title I - Subject matter, Scope and Definitions
1. Pregled
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Regulativa |
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1. Subject matter
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These guidelines aim at achieving a common understanding among the competent authorities across the EU on IRC modelling in order to contribute to a level playing field in line with Annex V of Directive 2006/49/EC, as amended by Directive 2010/76/EU.
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2. Institutional scope and level of application
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2. Institutional scope and level of application
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A. Material scope of application
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A. Material scope of application
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4. Positions subject to calculation of the IRC
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4. Positions subject to calculation of the IRC
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5. Positions not subject to calculation of the IRC
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The following items should be excluded from the calculation of the IRC: - a. securitisations;
- b. n-th-to-default credit derivatives; and
10 - c. positions subject to the specific interest rate risk charge and different from securitisations or n-th-to-default credit derivatives if they are positions of the correlation trading portfolio (CTP).
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6. Positions in equity and equity derivatives
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6. Positions in equity and equity derivatives
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7. Positions in the institution’s own debt
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7. Positions in the institution’s own debt
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8. Permanent partial use
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8. Permanent partial use
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B. Individual Modelling
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B. Individual Modelling
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9. Soundness standard comparable to IRB
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Unless otherwise specified in these guidelines, the soundness standard comparable to IRB applicable to IRC is: a capital horizon of 1 year and a confidence interval of 99.9 %.
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10. Qualitative criteria
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All aspects of the IRC approach applied should be thoroughly documented. This includes documentation of any analysis undertaken to motivate assumptions, estimation techniques, proxies, or simplifications. Any such decisions should be justified at the request of the competent authority.
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11. Source of ratings
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11. Source of ratings
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12. Source of PDs and LGDs
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12. Source of PDs and LGDs
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C. Interdependence
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C. Interdependence
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13. Correlations between default and migration events
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Institutions‟ IRC models should include the impact of correlations between default or migration events in a way that is consistent with their purpose, which is to capture credit risk correlations between different issuers. The assumptions on which their estimation is based should be consistent with the assumptions used in the simulation. The methodology should be documented and duly justified. The approach should be adequate and conservative enough to capture the interdependence between the risk drivers of credit risk events such as defaults and migrations. This would include, for example, the obligation that, if institutions choose to estimate their correlation parameters from the prices of traded securities, the estimates should be updated frequently. 13
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14. Copula assumptions
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For the purposes of describing its assumptions on the interdependence between risk factors, an institution may select possible copula candidates according to its ability to explain default or migration clusters for historical tail events. The choice of a particular copula should be justified and documented.
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15. Systemic risk factors
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15. Systemic risk factors
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16. Portfolio concentration
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16. Portfolio concentration
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17. Migration matrices
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17. Migration matrices
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18. Constant level of risk assumption over the one-year capital horizon
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18. Constant level of risk assumption over the one-year capital horizon
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19. Hedging
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19. Hedging
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D. P&L valuation
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D. P&L valuation
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20. Impact of rating change on market prices
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20. Impact of rating change on market prices
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21. Computation of P&L
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The valuation parameters for all rating categories should be estimated in a methodologically consistent way. Since the IRC is a capital requirement for market risks, the valuation of positions under the IRC should be based on currently observable market data. Market data used to evaluate the positions to which the shocks generated by the rating migration are applied should be the latest available market data at the time of computation of the IRC.
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E. Liquidity horizon
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E. Liquidity horizon
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22. The level at which to define liquidity horizons
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22. The level at which to define liquidity horizons
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23. Key criteria for determining the relevant liquidity horizon
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23. Key criteria for determining the relevant liquidity horizon
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24. Monitoring liquidity horizons - key indicators of the need for review
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24. Monitoring liquidity horizons - key indicators of the need for review
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F. General matters
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F. General matters
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25. Validation
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25. Validation
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26. Use Test
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26. Use Test
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27. Documentation
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27. Documentation
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28. IRC approaches based on different parameters
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28. IRC approaches based on different parameters
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29. Frequency of calculation
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29. Frequency of calculation
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30. Date of application
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Competent authorities should implement these Guidelines by incorporating them within their supervisory procedures within six months after publication of the final guidelines. Thereafter, competent authorities should ensure that institutions comply with them effectively. 23
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1.1 Reference
1.2 Utvrđeni zahtjevi
1.3 Povezani standardi
2. Utvrđeni zahtjevi
3. Povezani standardi
- EBA - Published by the European Banking Authority at https://www.eba.europa.eu/
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