ECB Annual Report on supervisory activities

1.2.2 Work on other methodologies
The objectives and the set-up of
TRIM have been laid down in detail
109
Internal model
investigations launched
in 2016
In 2016 conceptual work on internal models focused on the targeted review of
internal models (TRIM), which starts in 2017. In preparation for TRIM, <strong>ECB</strong> Banking
Supervision:
• made a representative and risk-based selection of models to be reviewed onsite;
• formulated a supervisory guide for specific risk types and set in place inspection
techniques for their validation; 10
• drew up organisational provisions to deal with the increased number of internal
model investigations performed on-site in the coming years;
• updated the significant institutions regularly on the project;
• conducted several information-gathering exercises, enabling significant
institutions to contribute to the preparatory phase.
Chart 3
Most internal model investigations in 2016 focused on
credit risk
Credit risk
Market risk
Counterparty credit and CVA risk
Operational risk
87 16 5 1
0 20 40 60 80 100 120
Over the past year, 109 internal model investigations
were launched at significant institutions, and 88 <strong>ECB</strong>
decisions concerning internal models were issued.
These numbers are likely to increase in future when
additional investigations are performed in the context of
TRIM.
Further progress has been made regarding the
harmonisation of assessment practices of internal
models. <strong>ECB</strong> and NCA staff represented European
banking supervision in European and international fora
on issues relating to internal models and participated in
various exercises, such as the EBA benchmarking of
internal models.
1.2.3 Credit risk: work on non-performing loans
Levels of non-performing loans
have increased significantly since
2008
Non-performing loans (NPLs) pose a particular challenge to banks. NPLs have
increased significantly since 2008, particularly in Member States that underwent
significant economic adjustment processes over the past years. Large amounts of
NPLs contribute to low bank profitability and constrain the ability of banks to provide
new financing to the economy.
10
The guide was published on 28 February 2017.
<strong>ECB</strong> <strong>Annual</strong> <strong>Report</strong> on supervisory activities 2016 − Supervisory contribution to financial
stability 16