PwC's Managing upstream risk: Regulatory reform review - An asian perspective August 2013 | Page 8
Regulatory Updates
2. Banking
2.1 Basel III
Update
EBA on 5 August 2013 released its second interim report on the regulatory consistency of RWAs for credit risk in the banking book, aiming to identify and further understand the sources of any material differences in RWA outcomes for portfolios which are specifically challenging for the banks due to limited availability of data. The outcome of the LDP review found relevant differences in: • The scope of the application of internal models to LDP counterparts (e.g., application of the standardised approach permanent exemption and roll-out); • The probabilities of default (PDs) and the loss given defaults (LGDs) parameters for the same exposure to a counterparty; • The definition of default and the computation of the default rate used for the calibration of the internal models; • The computation of risk weights and expected losses on defaulted assets; and • Ways of computing maturity parameters, the CCF parameters applied for calculating the exposure at default and banks’ reporting practices. The report noted that banks’ choices or supervisory requests to apply minimum PDs, LGDs or add-ons to the risk weights computed with the internal models could create challenges in comparing the outcomes. Following these findings, four areas have been identified where additional efforts and work are needed: 1. ?\\??\??H\????\?H[??[????&H ?[??\?[??H???K\?[]Y[???X][??YY ? ??H[?[??Y8?$???K\?[]Y[???X][? ?[?H[????]Y[? H ?[??\?[??H^\??\?H ] HP?H\?^ X?Y ??\??H?][? H ?X??[?? ? L? ??H?[??? ??[?H[?H ?Y???\?[? H ?[Y][?[?[?]?[?? ???\??\?? Z\?[?\??[[?[ ?8?$???? ?X?X?\? ??[?HY[?Y?YY ??[?Y[? ?\?Y ? ?HY][?[?ZY[[?\?[?X??X?[?[?\? ?Y ?\??[?? ?X?Y?X?\??Y\? ??[?H]?[?Y ??\? ????\????\??[??H[? ?\\??\??H\??\??Y[? ?[??[??? ?X?X?\?
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