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CEBS published the final technical guidelines on application of the supervisory review process in relation to concentration risk under Pillar 2. The document sets out general considerations including current international thinking, a definition of what concentration risk might cover, the relevant legal requirements of the Capital Requirements Directive, and a summary of current market practices.
It puts the emphasis on high level guidance, some of which is applicable to institutions and some to supervisors. It is not meant to provide detailed guidance on whether and how quantitative tools and models should be used or developed.
The document sets out general considerations including current international thinking, a definition of what concentration risk might cover, the relevant legal requirements of the CRD, and a summary of current market practices.
The guidance for institutions sets out what institutions should take into account in relation to concentration risk in their ICAAP.
The guidance for supervisors outlines how concentration risk should addressed in the context of the Supervisory Review and Evaluation Process (SREP) dialogue.
As the large exposures review by the European Commission is still under way and since large exposure and concentration risk are closely related, it will probably be necessary to review the present guidelines in light of the outcome of that review.