FRANKFURT, March 30 (Reuters) - The European Central Bank will simplify and speed up approvals for changes to banks' internal credit risk models, easing a supervisory process that can delay capital
ECB to Simplify and Speed Up Banks’ Capital Risk Model Approval Process
ECB Announces Streamlined Approval Process for Banks’ Internal Credit Risk Models
Current Approval Requirements and Challenges
FRANKFURT, March 30 (Reuters) - The European Central Bank will simplify and speed up approvals for changes to banks' internal credit risk models, easing a supervisory process that can delay capital benefits and trigger lengthy on-site inspections, it said on Monday.
Banks currently must seek the ECB's prior approval for any material change in their internal models, a requirement that can spur on-site investigations and force lenders to run their old and new models in parallel for extended periods.
New Rules Effective from October 1
Faster Implementation and Fewer On-Site Reviews
Under new rules effective from October 1, banks will be allowed to implement material changes to their internal models shortly after submitting their application, and fewer of these changes will trigger an on-site review, the ECB said.
Capital Benefits and Risk Assessment
If a new model produces lower risk weights, banks will still get a quick go-ahead for their use, but any capital benefits will be capped until the ECB has assessed the model on-site.
ECB Statement on On-Site Investigations
"Under the new approach, the ECB will conduct these on-site investigations of internal models primarily where higher risks warrant closer scrutiny," the ECB said in a statement.
"Material model changes will no longer automatically trigger an on-site investigation."
European Banking Authority Guidelines and ECB Oversight
Separate guidelines from the European Banking Authority, also on Monday, reduce the number of model changes classified as material and subject to ECB approval.
The ECB, which supervises just over 100 of the euro zone's biggest banks, said that for sensitive cases, it retained the option to follow the standard approval process, under which banks must wait for the outcome of a dedicated on-site investigation before implementation.
The ECB last year conducted 74 on-site investigations of internal models, 90% of which were triggered by banks requesting initial model approvals or material model changes.
(Reporting by Balazs Koranyi; Editing by Bernadette Baum)
