EBA欧洲银行-2014-06-10-BSG-Opinion-on-JC-CP-2014-01_10页_168kb

EBA Banking Stakeholder Group Response Summary

Core Content

The Banking Stakeholder Group (BSG) has provided feedback on the Consultation Paper (JC/CP/2014/01) regarding the Draft Implementing Technical Standards (ITS) on the mapping of External Credit Assessment Institutions' (ECAIs) credit assessments under Article 136(1) and (3) of Regulation (EU) No 575/2013 (CRR). The BSG acknowledges the importance of credit ratings in regulatory and investment contexts and supports the expansion of the European credit rating market. However, they emphasize the need for clarity, transparency, and proportionality in the mapping process.

Main Views

1. Mapping of Credit Ratings to Credit Quality Steps (CQSs)

• The mapping is crucial for institutions and investors to determine risk weights and pricing.
• The mapping should reflect real differences in risk, as measured by default rates, and be based on observed data over a long period.
• The BSG believes that the principle of "relative differences of risk" should be more clearly defined in the regulation.

2. Transparency in the Mapping Process

• The methodology and final mapping results should be transparent.
• The BSG recommends that the main drivers of the mapping process, such as default rates, should be published.
• The current ITS lacks clarity on the practical application of "long-run benchmarks" and "short-run benchmarks".

3. Default Definition and Its Impact

• The definition of default used by ECAIs should align with Article 178 of the CRR.
• The BSG is concerned about the inclusion of non-materialised financial losses in the default definition.
• They suggest that the methodology for adjusting default rates should be included in the ITS.

4. Use of Quantitative Factors

• The BSG agrees with the proposed use of time horizon and transition probabilities in the mapping process.
• They recommend a more sophisticated approach for items withdrawn before the time horizon, rather than applying a uniform 50% assumption.
• The number of credit ratings and the availability of default data should be clearly defined and published.

5. Credit Quality Steps and Rating Categories

• The BSG feels that the number of CQSs (especially CQS2) is insufficient to capture the risk differentiation observed in ECAIs' ratings.
• They warn against mapping short-term ratings to higher risk weights than long-term ones unless justified by specific circumstances.
• The restriction to use the range and meaning of credit assessments only for adjacent rating categories may be too limiting when there are more rating categories than CQSs.

6. Impact of the Proposed ITS

• The proposed ITS will affect institutions using the standardised approach, especially those in Member States that previously used the central government-based method.
• The mapping of short-term credit assessments is expected to lead to fairer pricing of banking products based on accurate risk differentiation.

Key Recommendations

• The mapping methodology and final decisions should be made more transparent, including the publication of default rates and other relevant factors.
• The definition of default should be as close as possible to the regulatory definition in Article 178 of the CRR.
• The number of credit ratings and the use of default data should be clearly defined and published.
• The use of ECAI-provided default rate estimates should be more specific, with clear guidance on how and when they are applied.
• The practical application of the benchmarks and the mechanism for identifying weakening assessment standards should be better described.

Annex Highlights

• The BSG refers to historical anomalies in the mapping process, such as lower risk weights for long-term assessments compared to short-term ones in certain rating categories.
• The mapping tables show that short-term ratings can lead to higher risk weights than long-term ones, which the BSG believes should only occur if justified.
• The BSG suggests that public disclosure of the mapping methodology and decisions could help improve the accuracy and fairness of the process.

Conclusion

The BSG supports the general direction of the ITS but calls for greater clarity, transparency, and proportionality in its implementation. They emphasize the importance of aligning the mapping process with real risk differentiation and ensuring that the methodology is well-documented and accessible to all stakeholders.