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E X E C U T I V E S U M M A R Y O F T H E A N N U A L R E P O R T 2 0 1 4

5

Restoring confidence and improving

transparency

In the aftermath of the financial crisis, ques-

tions were raised as to why there were sig-

nificant differences in the calculations of risk-

weighted assets (RWAs) using banks’ internal

models. The EBA has worked to restore confi-

dence in the use of internal models for capital

purposes. In this regard, European legislators

have also acknowledged the need to introduce

several additional checks and balances re-

garding their use, and the EBA has prepared

several Regulatory Technical Standards (RTS)

and benchmarks for supervisors to assess

model outcomes and help improve transpar-

ency concerning the use of models.

The CRR includes mandates to produce RTS

with the objective of harmonising the process

to be followed when changes to internal mod-

els are introduced. The EBA submitted these

draft RTS on the conditions for assessing the

materiality of extensions and changes for the

internal models used for credit and operation-

al risks to the European Commission at the

end of 2013 (they came into force in mid-2014),

while the draft RTS on the internal model ap-

proach for market risk were submitted in the

middle of 2014. Additionally, the EBA has also

been developing three draft RTS to specify

the methodology that competent authorities

should follow when assessing the compliance

of institutions with the requirements to use

internal models for credit, market and opera-

tional risk. These will be submitted to the Eu-

ropean Commission by the end of 2015.

In 2014, concerns about differences in the cal-

culation of RWAs were tackled by the EBA with

significant work on the comparability of capi-

tal requirements, which led to a greater un-

derstanding of the consistency of RWAs. The

EBA also increased the transparency of inter-

nal models and their outcomes via disclosure

of data under a consistent format and using

consistent definitions.

Uniform reporting requirements were also

emphasised by the EBA in 2014 to ensure data

availability and comparability. This is impor-

tant not only for the EBA, but also for the Eu-

ropean Systemic Risk Board (ESRB) and the

Single Supervisory Mechanism (SSM), which

rely on comparable data in order to perform

their roles. Harmonised reporting require-

ments now cover areas including own funds,

large exposures and liquidity coverage.

During 2014, the EBA worked on different top-

ics related to market infrastructures and de-

veloped standards covering the general capi-

tal requirements that will apply to all Central

Securities Depositories (CSDs); these stand-

ards will be finalised in 2015.

Focus on recovery and resolution regulation

In line with its additional responsibilities stem-

ming from the new BRRD, the EBA focused

on the recovery and resolution regulation and

developed a number of regulatory products in

this area. In relation to this, the EBA is current-

ly working on about 40 guidelines, Regulatory

Technical Standards (RTS) and Implementing

Technical Standards (ITS), as well as providing

advice to the European Commission regarding

delegated acts. The principle of proportionality

was central when preparing regulatory prod-

ucts on this topic, as it recognises the impor-

tance of the diversity of the EU banking system

and explicitly refers to the need to develop and

apply rules in such a way that this diversity is

acknowledged and preserved.