The European Banking Authority (EBA) today published its 2023 Reports on the annual market and credit risk benchmarking exercises. These exercises aim at monitoring the consistency of risk weighted assets (RWAs) across all EU institutions authorised to use internal approaches for the calculation of capital requirements. Regarding market risk, for the majority of participating banks, the results confirm a relatively low dispersion in the initial market valuation (IMVs) of most of the instruments, and a decrease in the dispersion in the value at risk (VaR) submissions compared to the previous exercise. For credit risk, the variability of RWAs remained stable compared with the previous year, but for some asset classes a reduction could be observed in a longer perspective.
Market Risk exercise
The Report presents the results of the 2023 supervisory benchmarking and summarises the conclusions drawn from a hypothetical portfolio exercise (HPE) conducted in 2022/23.
The results confirm that most participating banks have seen a relatively low dispersion in the initial market valuation (IMVs) of most of the instruments, and a decrease in the dispersion in the value at risk (VaR) submissions compared to the previous exercise.
From a risk factor perspective, FX portfolios exhibit a lower level of dispersion than the other asset classes. In general, variability is substantially lower than in the previous exercise. This is likely due to an improvement in the data submission, which impacted the dispersion of the risk measures, decreasing the dispersion in general.
Regarding the single risk measures, across all asset classes except for CO, the overall variability for value at risk (VaR) is lower than the observed variability for stressed VaR (sVaR) (16% and 21%, compared to 21% and 28% in the 2022 exercise, with 27% and 31% in 2021 and with 18% and 29% in 2020). More complex measures, such as the incremental risk charge (IRC), show a higher level of dispersion (42%, compared to 45% in the 2022 exercise, with 43% in 2021 and 49% in 2020).
Competent authorities also complemented a questionnaire on banks participating in the exercise to supplement the quantitative analysis. The majority of the significant dispersions have been examined and justified by the banks and Competent Authorities. A small minority of the outlier observations remain unexplained and are expected to be part of the ongoing activities of supervisors, who are expected to monitor and investigate the situation.
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