Systemically important banks move to internal ratings: Bank of Russia consultation paper
The regulator suggests to discuss the steps needed for systemically important credit institutions (SICIs) to consistently apply the internal ratings-based (IRB) approach for credit risk assessments.
Once the IRB is adopted, banks will get a more accurate assessment of the capital needed to cover credit risks, while their risk management systems will achieve a higher level of development.
The Consultation paper points out that in order to achieve this goal a suggestion has been put forward to extend the term of full implementation of the IRB to five years, reduce capping for a minimal portion of IRB-transferred assets at the initial phase of the transition, and allow SICIs to perform the loan portfolio transition to the IRB by segment. At the same time, it is planned to make SICIs liable for any missed deadlines and failures to submit internal ratings approval data.
Currently, the transition to the IRB is a voluntary process. Amendments to the laws and Bank of Russia regulations are needed to make it compulsory for SICIs.
The issue of SICIs' compulsory transition to the IRB has been addressed earlier when public discussion of the consultation paper ‘On determining systemically important credit institutions and approaches to their regulation’ was in progress. In its new consultation paper, the Bank of Russia looks into specific phases and measures to facilitate SICIs' transition to the IRB.