EBA欧洲银行-20131217-Summary-report-on-comparability-and-pro-cyclicality-of-the-IRB-Approach_32页_977kb

Summary Report on the Comparability and Pro-Cyclicality of Capital Requirements under the IRB Approach

Core Content

The European Banking Authority (EBA) has conducted a comprehensive analysis of the comparability and pro-cyclicality of capital requirements under the Internal Ratings Based (IRB) Approach, as mandated by Article 502 of the Capital Requirements Regulation (CRR). This report synthesizes findings from five studies, focusing on the consistency of risk-weighted assets (RWAs), supervisory rules and practices, and the potential pro-cyclicality of the IRB framework.

Main Views and Key Information

1. Comparability of Capital Requirements

• Purpose: To identify the sources of differences in capital requirements across institutions and assess whether these differences are risk-based or non-risk-based.
• Key Drivers of Variability:
  • Partial use (permanent and roll-out): A major factor in capital requirement differences.
  • Standardised Approach (SA) risk weights (RWs): Influences the GC (global charge) significantly.
  • IRB portfolio mix: Affects the overall capital requirements.
  • Share and RWs of defaulted assets: Plays a critical role in GC variability.
• Non-risk-based drivers:
  • Modelling practices: Differences in PD (probability of default), LGD (loss given default), and EL (expected loss) calibration.
  • Supervisory practices: Variations in the application of regulatory rules and national discretions.
  • Definition of default and past due: Affects the interpretation and calculation of capital requirements.
• Findings:
  • Capital requirement differences are largely risk-based, especially for retail and corporate exposures.
  • A-type differences (simple drivers) account for around 50% of GC variability.
  • B-type differences (complex drivers) are more difficult to assess due to lack of granular data and model transparency.
  • The EBA recommends more harmonised disclosure of aggregated data, particularly under Pillar III reporting, to improve transparency and comparability.

2. Pro-Cyclicality of Capital Requirements

• Objective: To assess whether capital requirements under the IRB Approach exhibit pro-cyclical behavior and how this might impact lending and the economic cycle.
• Key Findings:
  • Evidence of pro-cyclicality is weak.
  • A clear causal link between capital requirements and the economic cycle could not be established.
  • The focus is on improving transparency and documentation of rating philosophies, PD and LGD calculations, and back-testing methodologies.
• Econometric Analysis:
  • The EBA conducted an analysis of the relationship between macroeconomic indicators and minimum capital requirements.
  • The study also included an overview of the evolution of key ratios related to RWAs and their decomposition.

3. Methodology and Data Sources

• Top-down approach: Used aggregated supervisory data from 89 IRB banks across 16 EU jurisdictions (reference date: December 2011).
• Bottom-up approach: Focused on low default portfolios (LDPs) and SMEs and residential mortgages (RMs), using more granular data from 35 and 45 banks respectively.
• Key Indicator: The global charge (GC) was used as a synthetic measure to assess variations in capital requirements, defined as:
  $$
  GC = \frac{RWA + 12.5 \times EL}{EAD}
  $$
• Supervisory Survey: An extensive survey of 21 competent authorities (CAs) identified key regulatory and supervisory practices influencing capital requirements.

4. Policy Recommendations

• Harmonisation of Practices: The EBA recommends further harmonisation of supervisory and bank practices, especially in areas such as:
  • Default definitions and past due.
  • LGD and ELBE calibration.
  • Roll-out plans and partial use.
• Transparency and Documentation: Emphasis is placed on improving transparency and documentation of internal models, rating philosophies, and back-testing methodologies.
• Regulatory Development: The EBA is working on draft regulatory technical standards (RTS) and implementing technical standards (ITS) to address discrepancies and ensure convergence.
• Supervisory Benchmarking: Annual supervisory benchmarking exercises will further investigate differences and assess the convergence of practices in response to EBA standards.

Conclusions

• The IRB framework has proven to be valid and risk-sensitive, allowing banks to use detailed customer and local information.
• However, the framework's flexibility has led to divergent practices across institutions and jurisdictions.
• The EBA's policy recommendations aim to increase comparability and reduce pro-cyclicality, while maintaining the risk-sensitive nature of the IRB Approach.
• Further studies and benchmarking are necessary to fully understand and address the remaining variability in capital requirements.

Key Reports and Studies

Figures Mentioned

• Figure 1: Overview of EBA's work on comparability and pro-cyclicality.
• Figure 2: Change in GC (%) difference for credit risk after accounting for A-type effects.
• Figure 3: GC for each IRB asset class at December 2011.

Annexes

• The report includes annexes that provide detailed methodologies, data sources, and further analysis of the studies mentioned.