Page 26 - EBA 2015.1815 Annual report 2014 web 2

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E U R O P E A N B A N K I N G A U T H O R I T Y
24
Achievements in 2014
In 2014, the EBA made significant progress in
delivering on its mandates in and continued its
crucial role in safeguarding the integrity and
stability of the EU banking sector. Among no-
table achievements was the further develop-
ment of the Single Rulebook in banking, the
continued promotion of supervisory conver-
gence and assessing risks as well as activ-
ity to ensure transparency in the EU banking
sector. In addition, the EBA continued its work
protecting consumers and monitoring finan-
cial innovation.
Completing the Single
Rulebook in banking
One of the main tasks of the EBA is to con-
tribute to the development of the Single Rule-
book to provide one set of rules that govern
the EU banking sector and which take into ac-
count the varied European banking structures.
Within the Single Rulebook the EBA lays the
regulatory foundations for a single EU banking
sector, comprising both Euro and non-Euro
areas. The EBA’s role is to ensure consistency
and convergence in the application of these
rules in supervisory and resolution practices.
The EBA fulfilled this task by producing bind-
ing technical standards, reports, guidelines
and opinions that led to a convergent applica-
tion of Level 1 banking legislation, specifically
the Capital Requirements Regulation (CRR),
Capital Requirements Directive (CRD) and the
BRRD. The EBA went a step further and also
provided responses to stakeholders’ questions
regarding the application of specific provisions
in Levels 1 and 2 banking regulation.
In 2014 the EBA’s activity in developing the
Single Rulebook encompassed areas includ-
ing use of internal models, common reporting
frameworks, supervisory convergence, bank
recovery and resolution, remuneration and
progress in the area of own funds.
Fostering convergence and restoring
confidence in the use of internal models
The EBA has worked to restore confidence
in the use of internal models for capital pur-
poses. In addition, the EBA aims to foster con-
vergence in modelling practices and to reduce
the variability observed in RWAs.
Considerable time has passed since the pos-
sibility of use of internal models for capital
purposes was introduced in the Basel Frame-
work in 1996 for Market Risk and in 2004 for
Credit and Operational Risks. The use of in-
ternal models brings clear benefits, such as
an increase in the risk sensitivity of the capital
framework as well as improvements in risk
management practices of institutions and a
more risk-focused supervision; however, in-
ternal models also pose challenges and su-
pervisory risks, which need to be addressed.
It is clear that different practices and internal
model methodologies applied by institutions,
as well as divergent supervisory implementa-
tion standards, may have led to an excessive
dispersion in the calculation of RWAs and, on
occasions, may have also produced an un-
derestimation of own funds requirements for
certain instruments. In this regard, as noted
in Box 1, since 2012 the EBA has already con-
ducted several exercises in order to assess
the consistency of RWAs for credit and market
risk internal models.