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Basel IV and IFRS 9:Interaction and Impacts
EUROPEAN CENTRAL BANK
Banks are actively working on the design and implementation of their solutions for the EBA’s new Definition of Default and Materiality Threshold requirements. Effective implementation requires detailed analysis of current default practices to understand the changes that are required across policy, processes, procedures, modelling and systems. This involves a well-coordinated effort across business, risk, finance and data/system expertise. Additionally, Banks are invited by the ECB to engage in a Two-Step Process for the implementation of the new Definition of Default with a year-end deadline for submission of the completed Application Pack. This session covers:
In 2017-2018 EBA published three guidelines papers about LGD estimation: the final version on LGD (for performing) and ELBE for defaulted exposures as well as three draft versions on LGD downturn, where 2018 versions represent revision of the 2017 proposal.
In the final version there are several new requirements (like the independence period) as well as more details on the requirements for estimation methods (like the maximum length of resolution process and set up of reference dates). Those essential requirements form a great challenge for modelling and methodology departments of a bank. This session will cover the practical implications of this regulatory change, including:
As a consequence of the ECB TRIM project and the regulation aiming at harmonising the criteria for approving internal models for RWA calculation purposes in the SSM jurisdictions, banks are experiencing an increasing challenge on their entire model-related ecosystem: governance, organisation, methodology, tools, data, etc. This session will focus on the industry response to these challenges, based on direct experience with banks and on ECB’s publicly disclosed information, and is likely to include:
After successful implementation of IFRS 9, banks now deal with post-implementation IFRS 9 challenges including validation and modelling complexities. There is a clear link between credit risk models and stress testing, and banks have to figure out how to optimise this relationship. This session focusses on the required regular re-validation activities across these model classes, including:
Highlighting IFRS 9 Modelling Lessons Learned and Refining Approaches in 2018
2017 was a busy year for banks as they worked hard to implement the new and complex ECL calculations required for IFRS 9. 2018 has been a year of taking stock, understanding
the dynamics of the new calculations, and looking at how the calculations can be embedded in other processes such as stress testing. The presentation looks at these issues and
The new IFRS 9 and US GAAP CECL accounting standards require forward looking credit loss models for provisioning. The models need to forecast credit losses in return to a macroeconomic outlook, similar to the existing stress testing models for Pillar II. Therefore, banks face the question whether they can leverage their stress testing models for provisioning. This presentation explores the pros and cons by relating to examples.
During the regulatory "Targeted Review of Internal Models" (TRIM) activities related to risk model validation gained a lot of attention. After describing the main characteristics of a sound validation framework this session will provide a pragmatic approach to some enhanced validation tools. This session will also critically reflect on the reach of big data in credit risk.