CP10 (Full Document) - European Banking Authority

calculation of capital requirements, while for some other functions
(such as pricing) they could be less strongly linked.
133. ‘Playing an essential role’ does not mean that the data/parameters
used in calculating capital requirements need to be identical to, or a
linear and homothetic function of the data used for credit
management. It means that there is a strong relationship between
the data/parameters used in calculating capital requirements and the
data used for credit management. This relationship needs to be
documented clearly, and any differences validated and explained to
supervisors.
134. Institutions should identify and describe the use they make of
internal ratings, relevant risk parameters, and all related systems
and processes. They should provide such documentation to their
supervisor so that the impact on the institution’s operations can be
assessed. Such documentation should be updated regularly by (for
example) the credit risk control function, and reviewed by internal
audit.
135. Prior to granting permission for the use of the IRB approach,
supervisors should check the total capital requirements calculated
based on all the approaches/methods/rating systems that the
institution intends to use at the time of the initial permission to use
the IRB approach. An analogous check should be performed prior to
granting permission to use additional approaches, methods, or rating
systems, subsequent to the initial permission to use the IRB
approach. The purpose of these checks is to ensure that the
institution's systems for managing and rating credit risk exposures
are sound and implemented with integrity. Institutions will be
required to report their total capital requirements to supervisors in
order to obtain the respective permission. Some supervisors might
retain a limited reporting but would be keen on checking its
accuracy, others would prefer a more extended running of reporting
lines.
Use of data for internal purposes
136. It is not always necessary that data used in calculating capital
requirements serve directly as the only information or the final
parameters for all internal purposes. However, any differences
should be assessed carefully by supervisors. The use for internal
purposes of the data used in calculating capital requirements should
be as comprehensive as necessary to ensure that those data play an
essential role in the processes and functions listed in Article
84(2)(b).
137. Data categories should be distinguished. Inputs in the form of data
published in financial statements, for example, have to be
distinguished from estimated data which result from the institution’s
calculations. All of the institution’s estimates of risk parameters
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