CP10 (Full Document) - European Banking Authority

· Institutions may not be ready to apply the IRB approach at the
time the CRD is legally adopted.
· The extension of rating systems to some parts of their business
may be unduly burdensome and may not create value.
3.1.1. Roll­out
99. Article 85 of the CRD gives institutions the possibility of
implementing the IRB Approach sequentially across different
exposure classes, while Article 89 permits them to exempt certain
exposure classes permanently. However, supervisors would expect
institutions already to be using the IRB approach for at least a
portion of their business when they apply for approval to use the IRB
approach for regulatory purposes.
100. As a general principle, the rating systems used should cover all
exposure classes (Article 85(1)). However, it is likely that only some
exposure classes will be covered when the formal application is
submitted or after the initial approval to use the IRB has been
granted. Supervisors will examine the institution's implementation
plan to ensure that it is credible and feasible with regard to initial
coverage and the pace of roll­out.
101. Supervisors may decide to adopt quantitative or qualitative rules.
Under a quantitative rule, a certain percentage of an institution’s
risk­weighted exposure amounts and/or exposure value would have
to be covered in order to start the approval process. Under a
qualitative rule, exposure classes or portfolios that represent the
core business of the institution should be covered. Although
supervisors will apply different approaches (qualitative or
quantitative) and use different thresholds, it can be stated as a
common rule that the lower the threshold, the shorter the time
frame for the roll­out in order to achieve a sufficient degree of
representativeness.
102. The institution’s roll­out policy should indicate at least the time
horizon and the roll­out sequence. The roll­out plan should have a
definite time horizon. Article 85(2) requires that IRB implementation
“shall be carried out within a reasonable period of time.” This period
should reflect the institution’s realistic ability to convert to the IRB
Approach and the supervisors’ expectations that the institution’s core
business and main credit risk drivers will be covered by the IRB
Approach as quickly as possible.
103. The time horizon should be short enough to avoid prolonging IRB
applications unduly, and long enough to ensure the quality of data,
methodology, and output. Since supervisors must retain discretion to
take account of certain special features of the institutions in their
member state, the setting of a common, EU­wide maximum time
frame does not appear useful.
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