Question ID
2016_3002
Legal act
Directive 2013/36/EU (CRD)
Topic
Supervisory reporting - Supervisory Benchmarking
Article
78
Paragraph
2
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) 2016/2070 - ITS on Supervisory Reporting (for benchmarking the internal approaches) (as amended)
Article/Paragraph
c060 of C 102.00 of Annex I
Type of submitter
Credit institution
Subject matter
Rating grades in Annex I of the draft ITS on benchmarking
Question

Please confirm the approach to be applied regarding the master scale.

According to us, two options seem possible:

Case 1: use only the necessary number of proposed available rating grades of the annex 1 (e.g. in case we have 30 different non defaulted values in our master scale, we would map them with the 30 first rating grades of the annex 1)

Case 2: distribute the internal master scale on the whole range of the proposed rating grades of annex 1 (e.g. in case of 30 different non defaulted values in our internal master scale, "internal_rating_1" = "rating 1", "internal_rating_2" = "rating 4", "internal_rating_3" = "rating 7", ... , "internal_rating_30" = "rating 99").

This should allow a more homogeneous distribution of the different master scales of the institutions in the regulatory proposed master scale from "rating 1" to "rating 99".

Background on the question

Ensure a homogeneous approach among institutions

Submission date
Final answer

As highlighted in the instructions of column 060 of C 102.00 of Annex IV to Regulation (EU) 2016/2070 (ITS on Supervisory Benchmarking), it is neither intended nor desirable to have a supervisory master scale. Therefore, if the reporting institution applies a unique rating system or is able to report according to an internal master scale, this scale shall be used (Rating 1, Rating 2, Rating 3…). This approach is identical to case 1 as described in the question.

If different rating systems apply, these rating systems shall be merged and ordered according to the following criteria:

  1. obligor grades of the different rating systems shall be pooled and ordered from the lower PD assigned to each obligor grade to the higher;
  2. where the institution uses a large number of grades or pools, it may agree with the competent authorities to report a reduced number of grades or pools.

The whole range of proposed rating grades doesn’t have to be used. However, as stated in paragraph 4 of Annex IV to the ITS on Supervisory Benchmarking, information on the PD shall be reported for the entire rating scale (of the institution), even if the institution has no exposure for each rating grade.

Status
Archive
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has been archived in the light of the most recent amendments to the ITS 2016/2070 on Supervisory Benchmarking.