Internal ratings-based (IRB) approach
Banks temper credit loss models by editing Covid narrative
Faced with geopolitical chaos and signs of recession, expected credit loss models need to adapt fast
How a credit run affects asset correlation
This paper analyzes how soaring demand in the lending market shortly before a financial crisis can affect one of the main parameters in the internal ratings-based approach: the asset correlation.
Nationwide’s IRB charges up 89% on PRA’s parameter curbs
The building society’s strict focus on mortgages meant impact was all-sweeping
How will US regulators perform the Basel III balancing act?
Largest banks seek offsets for higher capital requirements caused by possible end of IRB, IMM
Credit RWAs for EU, UK banks up in Q1 amid IRB clampdown
Reforms to improve comparability of internal models compound declining asset quality
Credit risk capital models hanging by a thread in the US
Industry insiders expect Fed to drop IRB and IMM when adopting Basel III, but market risk models may survive
Model clampdown costs NatWest 157bp of CET1 ratio
Measures to remedy internal model deficiencies added £14.8 billion RWAs overnight
EU lawmakers’ demand for local capital floors alarms banks
Multiple output floors applied to each entity raises fears of capital increase for large groups
Regulation triple-whammy lops 63bp off StanChart’s CET1
January 1 saw the introduction of SA-CCR, curbs on IRB modelling and the reversal of software capitalisation benefits
Some EU banks keep underprovisioning for ECLs
Divergences between accounting and regulatory markdowns remains high at some top lenders
Weather, or not: is climate risk just part of credit risk?
Practitioners divided on whether climate risk can fit into existing credit risk weights
BoE floor could double capital charges on HSBC’s UK home loans
New rules could forcibly push up residential mortgage portfolio’s 5% risk density
Deutsche takes €17.7bn RWA add-on in final Trim hit
Leveraged loan portfolio among targets of ECB’s remedies
After bruising EU model review, banks ask: ‘Why bother?’
Post-Trim changes erode capital savings from internal models while raising their running costs
EBA to consult on banks’ machine learning use
Watchdog will set out stance on ML-based capital models amid conflicting guidance from supervisors
ECB’s models review heaped €275bn of extra RWAs on banks
Average bank CET1 capital ratio fell 71bp through Trim process
Share of small EU bank assets under standardised approach grew in 2020
At small banks, SA covered 88% of credit exposures
Portfolio shifts aided credit RWA reductions at Dutch banks in 2020
At ING, 0% risk-weighted sovereign exposures kept a lid on RWA inflation
Parallel lines: EU begins fight over Basel output floor
Leaked plan to exclude buffers from floor would please EU banks, could anger Basel and US
Shift out of models nets ING €8bn of sovereign RWA relief
Of standardised approach government debt exposures, 24% had a zero risk-weighting in Q2
Time for the standardised approaches to shine
Banks are playing a canny game of capital optimisation by toggling between internal models and regulator-set approaches
EU bank credit models neglect peripheral countries
A majority of non-core EU exposures are under the standardised approach
Credit Suisse nets 37% sovereign RWA cut
At end-2019, 75% of its government portfolio was under the standardised approach, up from 14% the year prior
Corporate loan default risk spiked at US G-Sibs in Q1
Median probability of default increases 17bp to 1.39% on the quarter