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Announcement:

Moody's: ECB's TRIM project seeks to restore confidence in banks' internal models and could mean added capital charges, a credit positive

Global Credit Research - 08 Mar 2017

Paris, March 08, 2017 -- The European Central Bank's (ECB) Targeted Review of Internal Models (TRIM) aims to address unjustified risk weighted assets variability and model shortcomings to restore confidence in banks' internal risk models, which could result in additional capital charges -- a credit positive, says Moody's Investors Service in a report published yesterday.

The TRIM project -- which started in 2015 and will last until 2019 -- aims to evaluate a large number of "internal models" that European banks rely upon to manage risk and estimate their risk-weighted assets (RWAs).

Moody's report, entitled "Banking - European Union: ECB's TRIM Project Aims To Restore Confidence In Banks' Internal Models," is available on www.moodys.com. Moody's subscribers can access this presentation via the link provided at the end of this press release.

"The ECB's findings should result in models' deficiencies being corrected and possibly in some models being discontinued. This may result in additional capital charges, other things being equal, which is credit positive," says Alain Laurin, Associate Managing Director at Moody's.

European domestic supervisors had carried out assessments of banks' modelling techniques under Basel II and Basel III, before allowing banks to use them. However, the depth of these assessments and the technical options chosen by local supervisors are likely to have differed between countries, which may explain, in part, RWA variability.

The use of internal risk models is also addressed by the Basel Committee on Banking Supervision (BCBS), which has reached a consensus that unjustified variability in models needs to be more tightly limited. So far, though, it hasn't agreed on the acceptable level of differences between the "standardised" measure of risks and banks' internal model estimates. On 2 March the BCBS announced that decision on the completion of the Basel III reforms (commonly referred to as Basel IV), which was postponed already on 3 January 2017, was again delayed as differences between members remain.

The ECB initiative aims to address model deficiencies and achieve consistency, which dovetails with the position taken by several European Basel Committee members in support of models as a reliable tool for differentiating risks.

The issue of RWAs has been debated by supervisors and other stakeholders since the beginning of the financial crisis, which highlighted that banks' actual risks were not always accurately reflected in RWAs.

Subscribers can access the report at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060913

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Alain Laurin
Associate Managing Director
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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