EBA欧洲银行-Public_hearing_benchmarking_art78CRD_16页_1mb

EBA Public Hearing on Draft RTS/ITS on Benchmarking under Article 78 CRD (June 16, 2014)

Introduction

The European Banking Authority (EBA) launched a public consultation on 28th May 2014 with the publication of a Consultative Paper on benchmarking under Article 78 of the Capital Requirements Directive (CRD). The consultation period ends on 19th August 2014, during which interested parties are invited to submit specific and focused comments on the proposed Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS), as well as their annexes.

The consultation includes a workflow for supervisory benchmarking, which involves:

1. EBA designing benchmarking portfolios (ITS)
2. Banks calculating own funds requirements for the portfolios (ITS)
3. Banks reporting results to competent authorities and the EBA (ITS)
4. EBA producing a report with benchmarks (RTS)
5. Competent authorities assessing the quality of internal models and taking corrective actions if necessary (RTS)

RTS Overview

The RTS define the benchmarks used for the assessment of own funds requirements, including:

• Extreme values
• Output modeling values and their standard deviation within the first and fourth quartiles of the peers’ sample distribution
• Own funds requirements under the standardized approach
• Own funds requirements based on outturns

These benchmarks are not exclusive or final, and competent authorities are encouraged to conduct additional analyses.

Key Questions for RTS

• Q1: Is the use of common benchmarks for credit and market portfolios necessary to ensure a common approach?
• Q2: Are the proposed benchmarks in the RTS sufficiently proportionate and flexible? Any alternative proposals?
• Q3: What limitations exist with the proposed benchmarks (e.g., quartiles, comparison between internal models and standardised approach, comparison between estimates and outturns)?
• Q4: What is the most appropriate benchmark and/or approach for assessing potential underestimation of own funds requirements?

ITS Overview

The ITS outlines the specific design and structure of the benchmarking portfolios, including:

• Annual exercise with a rotation approach for credit risk portfolios:
  • Even years: Low default portfolios (large corporate, credit institutions, central government) using a cluster approach and hypothetical transaction exercise
  • Odd years: Retail portfolios (SME corporate, SME retail, residential mortgages) using a cluster approach
• Market risk portfolios are designed to isolate and assess individual risk factors (e.g., volatility, correlation trading), with aggregated portfolios to evaluate capital and diversification effects
• The EBA is consulting on the phase-in approach for portfolio coverage:
  • Option 1: Introduce portfolios gradually over time
  • Option 2: Define all portfolios upfront but not apply them immediately

Key Questions for ITS

• Q8: Which phase-in approach is preferable?
• Q9: Are there ambiguities in the credit risk portfolios defined in Annex I? If so, please identify and suggest improvements
• Q10: Any suggestions for additional credit risk portfolios?
• Q13: Do you agree with the possibility of exempting firms from reporting portfolios if Article 3 conditions are met?
• Q14: Any suggestions for additional exemptions from reporting?

Market Risk Portfolios

The EBA proposed two types of market risk portfolios:

1. EBA Proposed Portfolios (Annex VII.a)

• Designed to assess individual risk factors (e.g., equity, volatility)
• Portfolio I: Long delta – FTSE 100 index futures (GBP)
• Portfolio II: Long gamma and vega – OTC Google call options (USD)
• Portfolio III: Volatility trade – short short-term vega and long long-term vega (USD)
• Advantages:
  • Allows assessment of individual risk factors
  • Covers non-euro jurisdictions
  • Enables analysis of P&L correlation and volatility
• Disadvantages:
  • Not previously tested
  • Does not address complex instruments

2. TBG Type Portfolios (Annex VII.b)

• Already tested in previous exercises
• Cover both complex and non-complex instruments
• Advantages:
  • Banks and competent authorities are familiar with them
• Disadvantages:
  • Does not allow assessment of individual risk factors

Key Questions for Market Risk

• Q5: Which set of market risk portfolios is more appropriate for the initial exercise under Article 78?
• Q6: Is the EBA’s approach suitable for future annual exercises?
• Q7: Any alternative proposals?
• Q11: Are there ambiguities in the market risk portfolios defined in Annexes VII.a and VII.b?
• Q12: Any suggestions for additional market risk portfolios?

Reporting Exemptions

The EBA allows exemptions from reporting if:

• The institution does not have model authorisation for the relevant instruments or risk factors
• There is no internal authorisation for operating in certain instruments or underlying assets
• The instruments incorporate underlying risks or features not contemplated in the institution’s risk metrics

Key Questions

• Q13: Do you agree with the exemption conditions outlined in Article 3?
• Q14: Any additional suggestions for exemptions?

Conclusion

The EBA seeks to ensure a consistent and proportionate approach to benchmarking under Article 78 of the CRD. The consultation involves a structured workflow and two sets of market risk portfolios, with a focus on assessing individual risk factors and enabling supervisory review. Banks are required to provide valuations and risk metrics for the portfolios, and exemptions are available under certain conditions. The feedback from interested parties will be used to refine the RTS and ITS, with the goal of improving supervisory practices and internal modeling approaches.