EBA欧洲银行-Policy-Advice-on-Basel-III-reforms-Operational-Risk_74页_1mb

Summary of EBA Policy Advice on the Basel III Reforms: Operational Risk

Core Content

The European Banking Authority (EBA) provides policy advice on the implementation of the Basel III Standardised Approach (BCBS SA) for operational risk, which replaces the previous approaches (Basic Indicator Approach (BIA), Standardised Approach (TSA), Alternative Standardised Approach (ASA), and Advanced Measurement Approach (AMA)).

The EBA evaluates the quantitative and qualitative aspects of the BCBS SA, including the impact on capital requirements, the use of loss data, and the alignment with the EU regulatory framework. The report outlines a set of recommendations to ensure consistency, proportionality, and effectiveness of the new framework across all EU banking institutions.

Main Recommendations

Part 1: Policy Recommendations on Quantitative Requirements

This section addresses the discretion and permissions allowed under the BCBS SA for operational risk. The key recommendations are as follows:

• Recommendation OR 1: The treatment of the Internal Loss Multiplier (ILM) for bucket 2 and bucket 3 banks should be the same across all EU jurisdictions. The EBA recommends that EU legislators, not individual supervisors, define this treatment at level 1 to ensure a level playing field.
• Recommendation OR 2: The discretion to set the ILM to 1 for all institutions in buckets 2 and 3 should be implemented consistently.
• Recommendation OR 3: The loss data threshold for bucket 2 and 3 banks should be increased to EUR 100,000.
• Recommendation OR 4: Supervisors may request banks to use less than 5 years of loss data when the ILM is greater than 1, provided that the losses are representative of the bank's operational risk exposure.
• Recommendation OR 5: Materiality thresholds and minimum retention periods for excluding certain operational risk loss events should be set by supervisors.

These recommendations are based on a detailed analysis of the capital impacts, volatility, and predictive power of historical losses.

Part 2: Policy Recommendations on Qualitative Requirements

This section includes recommendations on the definition, governance, and organisational aspects of operational risk management.

• Section 2.1: Definitional Requirements
  The EBA recommends clarifying definitions related to operational risk, including the Business Indicator (BI), to ensure consistency across regulatory texts.

• Section 2.2: Governance and Organisational Requirements
  The EBA recommends that the loss dataset be built based on clear and consistent criteria. It also suggests that governance structures should be established to ensure the quality of loss data collection and disclosure.

• Section 2.3: ICAAP and Pillar 2
  The EBA recommends that the internal capital adequacy assessment process (ICAAP) and Pillar 2 requirements for operational risk be aligned with the BCBS SA, ensuring that banks have robust frameworks for assessing and managing operational risk.

• Section 2.4: Business Indicator — FINREP Mapping
  The EBA recommends that the BI be mapped to the Financial Reporting Framework (FINREP) to ensure transparency and consistency in reporting.

The EBA also highlights the importance of supervisory review of data quality and disclosure, as well as the need for further clarifications on the use of key elements in the internal capital adequacy assessment process (ICAAP) and Pillar 2 for operational risk.

Key Information

Capital Impacts and RWA Changes

• The BCBS SA leads to an overall increase in operational risk RWA by 37% across all EU banks.
• For bucket 2 and 3 banks, the implementation of the BCBS SA results in a significant increase in RWA, leading to material cliff effects compared to current capital levels.
• The BIC and ILM components contribute to this increase, with BIC accounting for about 16% and ILM for about 20% of the total increase.
• Bucket 1 banks are not significantly affected by the new approach, as the ILM has no impact on them.

Loss Data and ILM

• The ILM is calculated based on a bank's historical losses and is used to adjust the BIC.
• The default ILM formula is:
  $$
  \text{ILM} = \ln [e - 1 + (LC / BIC)^{0.8}]
  $$
• The EBA recommends that the ILM threshold be set to 1 for all bucket 2 and 3 banks, which would neutralise its impact on capital requirements.

Statistical and Econometric Analyses

• The EBA conducted statistical analyses on the use of losses in the capital calculation, including:
  • Large losses capital coverage: The BCBS SA with ILM set to 1 performs similarly to current approaches, but the baseline BCBS SA offers better protection against large losses.
  • Volatility analysis: The BIC introduces more variability in capital figures compared to the ILM due to its reliance on a broader range of accounting items and the use of smoothing factors.
  • Econometric analysis: Past losses are statistically significant predictors of future losses, even when controlling for other bank-specific variables such as capitalisation and profitability.
• A transition matrix analysis supports the idea that a bank's operational risk profile persists over time.

Implementation and Proportionality

• The EBA emphasizes that the operational burden of the new framework should be proportional to the size and complexity of the banks, especially smaller institutions.
• The BI is used to categorise banks into three buckets based on their business size:
  • Bucket 1: BI ≤ 1 billion EUR (ILM = 1)
  • Bucket 2: 1 < BI ≤ 30 billion EUR (ILM = 1 or adjusted)
  • Bucket 3: BI > 30 billion EUR (ILM = 1 or adjusted)

Annexes and Supporting Data

• Annex 1: Reports on statistical analyses of the use of loss data in the regulatory capital calculation.
• Annex 2: Provides the EBA's internal risk taxonomy for operational risk.
• Annex 3: Details the mapping of the Business Indicator to FINREP (v2.8).

Conclusion

The EBA concludes that the introduction of the BCBS SA for operational risk is appropriate for the EU banking sector, provided that the recommendations on discretions, definitions, governance, and implementation are followed. These recommendations aim to ensure consistency, proportionality, and effectiveness of the new framework, while also supporting the qualitative aspects of operational risk management.