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On December 15, 2017, the European Central Bank consulted on a draft ECB guide on the assessment methodology for the internal model method and the advanced CVA capital charge for counterparty credit risk under the Capital Requirements Regulation. IMM and A-CVA are internal models used by banks to calculate counterparty credit risks for over-the-counter (OTC) derivatives and securities financing transactions.
The European Banking Authority was mandated under the CRR to provide an assessment methodology for IRB (credit risk), AMA (operational risk) and IMA (market risk) models. However, there is no mandate in the CRR for the EBA to produce regulatory technical standards for the assessment methodology for the IMM and the A-CVA models, as these are less widely used. The ECB has therefore considered it appropriate to develop the guide on its own initiative. The draft guide provides guidance to national supervisors how the ECB intends to investigate compliance with the existing legal framework in the context of any CCR-related internal model investigation (before or after approval) and the ongoing monitoring of approved internal models. The guide also provides optional guidance to significant institutions on the self-assessment of their IMM and A-CVA.
The ECB seeks feedback on the guide by March 31, 2018. It then plans a further call for feedback in 2018, following which the guide will be finalized.
The draft ECB guide is available at: https://www.bankingsupervision.europa.eu/banking/letterstobanks/shared/pdf/2017/ssm.egam_guide_draft.en.pdf ,
Frequently Asked Questions are available at: https://www.bankingsupervision.europa.eu/banking/letterstobanks/shared/pdf/2017/ssm.egam_qa.en.pdf and the ECB press release is available at: https://www.bankingsupervision.europa.eu/press/pr/date/2017/html/ssm.pr171215.en.html .
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