In an interview Wim Mijs, CEO of the European Banking Federation, Andrea Enria, chair of the Supervisory Board of the European Central Bank (ECB) discussed the development of internal risk models for capital requirements from the global financial crisis to Basel IV (Basel Endgame).
He said: “there was a moment immediately after the great financial crisis when I, as many other people, was asking myself whether to go on with the internal models or not. I mean, they didn’t work well, there was a lot of noise, also on consistency across banks. The investment to repair it, both from the regulatory point of view and from the supervisory point of view, was huge. Now I am glad that we decided to embark on this journey.”
“We did this huge process, and I think that eventually we managed to bring the models onto a much stronger footing. And I think we can trust them. To some extent, I am a bit saddened by the fact that our partners in the United States, our colleagues in the US authorities, decided, for instance on credit risk, not to use and not to rely any more on internal models for the determination of capital requirements.”