AI Summary of Article 144 Competent authorities' assessment of an application to use an IRB Approach
The competent authority may grant permission for an institution to employ the IRB Approach, including the use of its own estimates for Loss Given Default (LGD) and conversion factors, provided it meets specific criteria outlined in this Chapter. Key requirements include the effectiveness of the institution's rating systems in assessing risk, independence of the credit risk control unit, and comprehensive documentation and validation of these systems.
Furthermore, the European Banking Authority (EBA) is tasked with developing regulatory technical standards to guide competent authorities in their assessments by 10 July 2026, ensuring adherence to these rigorous requirements to maintain robust risk management frameworks.
Article 144 Competent authorities' assessment of an application to use an IRB Approach
1. The competent authority shall grant permission pursuant to Article 143 for an institution to use the IRB Approach, including to use own estimates of LGD and conversion factors, only if the competent authority is satisfied that requirements laid down in this Chapter are met, in particular those laid down in Section 6, and that the systems of the institution for the management and rating of credit risk exposures are sound and implemented with integrity and, in particular, that the institution has demonstrated to the satisfaction of the competent authority that the following standards are met:
(a) the institution's rating systems provide for a meaningful assessment of obligor and transaction characteristics, a meaningful differentiation of risk and accurate and consistent quantitative estimates of risk;
(b) internal ratings and default and loss estimates used in the calculation of own funds requirements and associated systems and processes play an essential role in the risk management and decision-making process, and in the credit approval, internal capital allocation and corporate governance functions of the institution;