EBA consults on technical standards on the permanent and temporary uses of the IRB approach

The European Banking Authority (EBA) launched today a consultation on its draft Regulatory Technical Standards (RTS) specifying the conditions for the permanent and temporary uses of the Standardised Approach (SA) by institutions that have received permission to use the Internal Ratings Based (IRB) Approach. The EBA has identified the use of the SA as a major driver in the comparability of credit risk capital requirements. These RTS will be part of the EU Single Rulebook aimed at enhancing regulatory harmonisation in the banking sector. The consultation runs until 26 September 2014.

The RTS proposed by the EBA build on Article 148(1) of the CRR which requires that institutions implement the IRB Approach for all exposures, unless they have received the permission of competent authorities to use the Standardised Approach. The consultation paper proposed by the EBA establishes a set of criteria that institutions using the IRB approach should fulfil when they apply the Standardised Approach for the calculation of their capital requirements for credit risk, on a temporary or permanent basis respectively.

The EBA specifies the conditions on the basis of which competent authorities may allow institutions to use the SA permanently for underlying exposures of the collective investment undertakings (CIUs) that do not belong to the equity exposure class. Furthermore these RTS propose maximum levels of exposure that are permanently allowed under the SA in the ‘central governments and central banks' and ‘institutions' exposure classes, and for immaterial exposures or exposures in non-significant business units. They provide qualitative criteria for competent authorities to assess the implementation of a rating system for the ‘central governments and central banks' exposure class and for the ‘institutions' exposure class.

These RTS also define a minimum initial level of exposures (and risk-weighted exposures) to be treated under the IRB approach by institutions, as well as qualitative criteria against which the competent authorities shall assess applications of institutions for a sequential roll-out of the IRB Approach. Limits on the exposures that can temporarily be considered under the SA are also specified.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 26 September 2014.

All contributions received will be published following the close of the consultation, unless requested otherwise. A public hearing will take place at the EBA premises on 8 September 2014, from 10:00 to 11:30 hours UK time.

Legal basis and next steps

The proposed draft RTS have been developed on the basis of Regulation 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (Capital Requirements Regulation - CRR). The Article 148(1) of the CRR mandates the EBA to develop draft regulatory technical standards (RTS) to specify the conditions of application of permanent and temporary uses of the Standardised Approach (SA) by institutions that have received permission to use the IRB Approach (IRB institutions).