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How to assess the adequacy of capital requirements based on internal models?

Author(s): Susanne Roehrig

Date published: Apr 2019

SUERF Policy Note, Issue No 68
by Susanne Roehrig, European Banking Authority

 

Keywords: Capital requirements, internal models, low default portfolio.

This article provides an overview of the general mechanics and relevant policies for the calculation of minimum capital requirements for credit risk. In the following the article focuses on the assessment of capital requirements based on internal models (IRB) as mandated in Article 78 the CRD. This assessment includes a benchmarking exercise and entails tasks for EBA as well as for competent authorities. The methods and key results contained in EBAs report on the results from the 2017 Low defaults portfolios (LDP) exercise are summarised and some, more recently published results of the EBA Report on the results from the 2018 low and high default portfolios exercise are referred to. Lastly a possible amendment of the focus of EBAs benchmarking exercise as regards credit risk is discussed.

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SUERF Policy Note, Issue No 68SUERF Policy Note, Issue No 68

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