Single Rulebook Q&A

Question ID: 2014_1686
Legal act : Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 – CRR2
Topic : Market risk
Article: 383
Paragraph: 1
Subparagraph:
COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 526/2014 - RTS on proxy spread and limited smaller portfolios for CVA risk
Article/Paragraph : 1
Name of institution / submitter: BaFin / Bundesbank
Country of incorporation / residence: Germany
Type of submitter: Competent authority
Subject matter : Usage of the internal model for determining the own funds requirements for the specific risk associated with traded debt positions in the advanced method for Credit Valuation Adjustment (CVA) risk
Question: Are divergent internal models allowed for determining the own funds requirements for the specific risk associated with traded debt positions and for the credit valuation adjustment risk?
Background on the question: Article 383 (1) CRR states that the internal model for determining the own funds requirements for the specific risk associated with traded debt positions shall be applied in the advanced method for CVA risk. Therefore a separate approval for the advanced method for CVA risk is not foreseen by the regulation. Nevertheless Article 383 CRR raises additional requirements to the simulation of credit spreads (e.g. use of the credit default swap spread of the counterparty (if available) or proxy credit spread requirements). The fulfilment of these additional requirements may result in changes to the already approved internal model for specific risk of traded debt positions. This could create additional burden without increasing the quality of the specific risk model.
Date of submission: 12/12/2014
Published as Final Q&A: 05/06/2015
EBA answer:

For the purposes of using the Advanced Method for the calculation of the own funds requirements for CVA risk, set out in Article 383 of Regulation (EU) No 575/2013 (CRR), institutions must use the internal model for the specific risk of debt instruments which has been approved by the competent authority in accordance with Article 363 (1)(d).

The competent authority may accept differences between the methodology within the model for the calculation of CVA risk and the methodology approved for specific risk of debt instruments only where those differences are necessary to meet the specific requirements of Article 383.

Status: Final Q&A
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