Significant institutions’ internal validation plays a key role in the European Central Bank’s assessment of the reliability and accuracy of their internal models. At the same time, it serves as an important input to the ECB’s assessment of the quality and regulatory compliance of internal models.
As part of its ongoing review of the regulatory compliance of the internal ratings based (IRB) approach, the ECB requires significant institutions that have permission to use the IRB approach to calculate their own funds requirements for credit risk to provide information on their PD, LGD, CCF models and the slotting approach.
Following this regulatory wave, Prometeia's industry survey involved Validation Units and CRO areas to understand whether and how banks are approaching ECB recent requirements and to identify best practices for compliance.