The European Banking Authority published its 2024 reports on the annual EU market and credit risk benchmarking exercises for banks authorised to use internal approaches, and for the first time issued a dedicated report on the Fundamental Review of the Trading Book Alternative Standardised Approach (FRTB ASA). The findings point to continued convergence in market risk outputs and broadly stable credit risk RWA variability, alongside more consistent own funds requirement results under the ASA than under internal models, albeit with remaining data submission inconsistencies in specific ASA components. For market risk, participating banks showed relatively low dispersion in initial market valuations, though slightly higher than in 2023, while dispersion in risk measure submissions declined compared to the previous exercise. Overall variability for value at risk was 14% and for stressed value at risk 21%, while more complex measures such as the incremental risk charge remained more dispersed at 44%. Competent authorities were generally able to explain causes of RWA over- and underestimation deviations and actions have been put in place to reduce unwanted variability, with effectiveness to be assessed through ongoing monitoring of benchmarking results. In the ASA benchmarking, own funds requirements were already significantly more consistent than under the internal models approach, but the Default Risk Charge, residual risk add-on and validation portfolios revealed inconsistencies in data submissions; the EBA noted the ASA benchmarking will become more critical as it is extended to banks applying ASA without the current requirement to have internal model permission. In credit risk, the share of exposure at default subject to the Internal Ratings Based method was slightly decreasing over the medium term but broadly constant in recent years, while the share of approved material model changes increased across asset classes, consistent with progress on the EBA’s IRB roadmap. Probability of default variability showed a clear decreasing trend, whereas trends for loss given default were less clear; prudential adjustments could explain part of the observed variability, and a retail portfolio analysis highlighted how collateralisation type and degree can influence LGD dispersion.
European Banking Authority 2025-04-04
European Banking Authority’s 2024 benchmarking reports show lower market risk model dispersion and stable credit risk RWA variability with first FRTB ASA review
The European Banking Authority's 2024 reports on EU market and credit risk benchmarking show continued convergence in market risk outputs and stable credit risk RWA variability. They introduce an analysis of the FRTB ASA, noting more consistent own funds requirement results under ASA compared to internal models, despite data submission inconsistencies. The findings stress the need for ongoing monitoring and adjustments to reduce variability and improve data consistency in market and credit risk assessments.