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Findings and next steps of the HDP exercise
The HDP report explains the overall level of variability in RWAs and examines the different drivers that explain the dispersion observed. Most of the results are broadly in line with previous exercises on residential mortgage, SME and other corporate portfolios (collectively referred to as "high default portfolios" – HDP). Two indicators are used to summarise the results, the RW and the ‘global charge' (GC, i.e. considering expected and unexpected losses).
A key finding from the top-down approach is that more than 80% of the observed difference in the GC levels across institutions could be explained by few drivers, namely: the proportion of defaulted exposures in the portfolio; the country of the counterparty; and the portfolio mix.
This exercise highlighted several areas in which supervisors – and colleges – should investigate further, for instance: the practices regarding defaulted exposures; the definition of default; the use of global models and the interaction with country-specificities for exposures with counterparties from different jurisdictions; unjustified differences between regulatory approaches and possible compensation effects between internal approaches.
Findings and next steps of the Market Risk exercise
The market risk report presents the observed variability measures in terms of the inter-quantile dispersion statistic (IQD). In the initial market valuation results, interest rate portfolios show a lower variability than other asset classes due to a more homogeneity across banks for modelling interest rate risk. In line with the previous exercises on market risk weighted assets variability, a significant dispersion for all the risk measures provided by banks is observed. As expected, the overall variability for Value at Risk (VaR) is lower than that observed for Stressed VaR (sVaR) and more sophisticated measures like Incremental Risk Charge (IRC) and All Price Risk (APR) show a much higher level of dispersion. Modelling choices play an important role in explaining this variability, especially for the most complex risk measures.
Report results from the 2016 market risk benchmarking exercise
Report results from the 2016 high default portfolio exercise