AFME: Consultation response draft EBA guidelines on PD estimation, LGD estimation and treatment of defaulted assets

10 February 2017

The Association for Financial Markets in Europe (AFME) is very supportive of the EBA’s IRB repair programme. AFME notes that the objective of the EBA Guidelines is to provide rules that will lead to comparability of model outcomes. The industry supports and agrees with this objective.

Nevertheless, as already pointed out in previous submissions, the costs and benefits of the repair programme need to be considered in light of yet further changes that may be required to firms’ models given work on the IRB framework at the BCBS level.

The current lack of clarity on how international developments will affect the (EBA revised) IRB framework means it is extremely difficult for firms to make model investment and strategic capital planning decisions.

These issues are compounded by the ongoing review of internal models through exercises such as the ECB’s TRIM project where it is not clear how these interrelate with the repair programme. Certainty on the timing, content and consistency of the international and EU requirements is becoming increasingly critical.

AFME provides a few overarching comments on the proposed Guidelines:

Finally, AFME notes the present Guidelines do not address credit conversion factors and off balance sheet exposures and that it is not clear whether the Guidelines should apply to slotting approaches too. Industry would welcome clarification on these issues.

Full response


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