On May 2, the European Banking Authority (EBA) published a consultation paper on four draft regulatory technical standards (RTS) on the standardized approach for counterparty credit risk under Article 277(5) and Article 279a(3) of the proposed Regulation mending the Capital Requirements Regulation (575/2013) (CRR II). These proposals build on the proposals included in the discussion paper published in December 2017 (which can be found here) and include specifying methods for the mapping of derivative transactions to risk categories, a formula for the calculation of the supervisory delta of options mapped to the interest rate risk category and a method for determining whether derivative transactions are long or short in their risk drivers.
A three-pronged approach is proposed for the assignment of a derivative transaction to a risk category:
- Qualitative approach – identifies derivative transactions that clearly have only one material risk driver.
- Qualitative and quantitative approach – requires a more detailed assessment of, and is applicable to, derivative transactions for which the mapping cannot immediately be done on the basis of the first approach.
- Third approach – identifyies all possible risk drivers of a transaction as material and allocating the transaction to all relevant risk-categories.
Comments can be made on the consultation paper until August 2. There will be a public hearing on June 17. The RTS are subject to change, as they are based on the proposed legislative text for CRR II and so will change to the extent the draft legislative text changes.
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