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Internal models benchmarking

Internal models benchmarking

​​​ESBG responds to EBA consultation


>> See the consultation response

>> EBA consultation on benchmarking of internal models



BRUSSELS, 1 February 2019 – There is need for more transparency and openness regarding the EBA benchmarking exercise for bank internal models, ESBG said late yesterday in its reply to an EBA consultation on benchmarking of internal models. The association of savings and retail banks in Europe noted that it would be highly useful for the participating banks to know how they "score" relatively to the other banks also involved in the exercise.  

ESBG also stressed in the response, which focuses on implementing technical standard (ITS) amending the European Commission Implementing Regulation EU 2016-2070, the “overly complex" nature of requests for additional pricing information. Those requests pose operational challenges to provide additional information on the pricing factors and on the the respective sensitivities, the paper notes, since this would require an extremely large amount of information to be delivered when applied on trade/instrument level. The foreseen timeline between the initial market valuation (IMV) measurement and the reporting date is also too short. ESBG argues the additional pricing information will not improve the comparison of VaR variability among institutions because risk factors in VaR often differ from the PnL setup – such as in number, timing, data source – up to differences due to in methodological aspects like usage of spreads or factor representations.

Regarding the time setting of the reference date for the instruments, ESBG stressed that the extended specification of the time setting provides additional clarity. It would be even better to have an additional update, however, with concrete dates to avoid potential remaining uncertainties such as non-business days.

Finally, ESBG called for more guidance with regard to the expected consideration of foreign exchange (FX) risk, including treatment of past cash-flows. Doubts remains on the benefits and the necessity of a split into a different standard notional for IMV purposes and different amounts in the VaR portfolio calculation.

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Internal rules; Proportionality; European Supervisory Authorities (EBA-ESMA)