HALISTER1: Europe’s TRIM Internal Model Review Is Credit Positive: Moody’s

Europe’s TRIM Internal Model Review Is Credit Positive: Moody’s

(Bloomberg) -- ECB’s Targeted Review of Internal Models may result in higher capital requirements, Moody’s says.
  • That could be outcome “even if the ECB says that increasing RWAs is not a goal” and would be credit positive, ratings company says in statement
  • Review could help to reduce variability in RWAs; restore confidence in models, which are sometimes seen as underestimating risk; lead to some of the 7,000 models being discontinued when review’s completed in 2019
  • “For models that do not meet minimum criteria, the ECB may decide to impose extra capital requirements to account for these deficiencies or even impose the adoption of the standardized approach. This may result in additional capital charges”
  • Convincing stakeholders that review is credible will require “a great deal of transparency” given market skepticism and may be complicated by fact that supervisors including U.K., Sweden, U.S. are “less supportive” of models
  • Regarding proposed Basel floor, if committee sets it close to 90% of standardized approach, markets will view decision as relatively conservative, while a floor closer to 60% would indicate recognition of models’ usefulness
LINK to press release: NSN OMHT6K3V7U9S

Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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2539Z GR (European Central Bank)

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