(Only in Italian)
Based on the definition of credit risk adjustment laid down in Article 4(1), point (95), of Regulation (EU) No 575/2013, only the expected credit losses reflected in the specific credit risk adjustments made by the institution holding the defaulted exposure can be accounted for in the assignment of a risk weight for the purposes of Article 127(1) of that Regulation.
However, the credit losses accounted for in the transaction price of the defaulted exposure, which are retained by the selling institution as a realised loss, cannot be recognised after the sale by the purchasing institution.
As a result, the applicable risk weight applied to the defaulted exposure may change following the sale of that exposure, even though the transaction price incorporates a discount of an amount equal to the specific credit risk adjustments for expected credit losses booked by the selling institution before the sale.
That situation creates a regulatory impediment to the creation of secondary markets for defaulted exposures, as the potential misalignment between the risk weights applied to the defaulted exposure by the selling institution and by the purchasing institution respectively might make the transaction less attractive for the purchasing institution and therefore create undue obstacles for credit institutions to move their defaulted exposures off their balance sheets.
The amendments are therefore designed to ensure that specific credit adjustments recognised for the purposes of Article 127 CRR include any discount in the price of a defaulted exposure that the acquiring institution has not recognised by increasing in Common Equity Tier 1 capital.
EBA has published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using internal ratings based (IRB) models.
These principles will be part of a supervisory handbook, which the EBA will publish later in 2022 with the objective to ensure a harmonised approach in the use of COVID-19 data, especially where the use of moratoria and other public measures may have led to changes in default rates.
The EBA has received requests for a timely clarification of the requirements covering the representativeness and usage of IRB-relevant data impacted by the COVID-19 pandemic and the countering measures in terms of validation and calibration. The four principles are also of general interest, especially in the context of other modelling practices, such as IFRS9, and will allow supervisors and banks to include them in their current considerations.
In merito ai principi:
- the first principle clarifies that the guidance on the assessment of data representativeness laid down in the EBA Guidelines on PD and LGD should be applied also in the case of COVID-19-impacted data;
- the second principle clarifies that a significant decrease in applied IRB risk parameters compared to the pre-crisis levels indicates a potential lack of representativeness and should be analysed in more depth;
- the third principle deals with the default and loss rates observed during the pandemic and clarifies that in case of non-representativeness of such rates, a recalibration should be postponed to lower long-run averages; and
- the fourth principle tackles the validation and recalibration of downturn LGD in the context of the COVID-19 pandemic. Here, the EBA recommends that potential downward recalibrations be postponed at least until the effects of the crisis have fully materialised in the observed loss rates.
