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CEBS consults on its proposed technical approach to understanding claims for diversification benefits arising from internal models used by supervised institutions for Pillar 2 purposes.
The consultation paper concentrates on the general qualitative environment in which diversification modelling takes place, and on the quantitative approaches that supervisors may consider when assessing firms' own measures of diversification.
The consultation presents current thinking on the areas of supervisory interest regarding an institution's management structure, organisation and internal controls, within the framework of risk diversification effects claimed under Pillar 2.
The paper mainly refers to commonly accepted modelling practices and does not necessarily mean that the supervisors will address internal economic capital models used for Pillar 2 purposes with the same intensity of scrutiny as in regulatory approval of Pillar 1 models.
These considerations could form part of a broader assessment of economic capital models where they incorporate diversification assumptions.
A public hearing will take place on
Deadline for consultation is