In our recent webinar “The Aftermath of TRIM”, PwC experts Kaan Aksel, Iosif Izrailov and Luis Felipe Barbosa explained the outcome of the TRIM Report (April 2021) and its implications for the future ECB review work in the contexts of the Internal Model Reviews that banks are using for the internal capital measurements.
The key takeaways from our webinar
At a time when the financial market crisis of 2009 was still creating havoc across the European financial system, and the much needed trust on the Basel framework was shaking, the ECB had made a bold move and announced in late 2015 the ‘TRIM programme’. The outcome has proved to be a successful initiative instilling the much needed calm and stability in financial markets.
The ECB’s Targeted Review of Internal Models (TRIM) was a multi-year project aimed at assessing the appropriateness of the Pillar I models used by significant institutions. The goal was to ensure consistency of approaches between institutions and compliance with minimum regulatory requirements and to achieve a unified supervisory approach to the models being used by the ECB regulated banks within the SSM avoiding any sort of regulatory arbitrage.
The ECB published the TRIM Report in April 2021 with a summary of the project’s key activities and results, based on the review points until year-end 2019. Under TRIM, 200 on-site model investigations for credit, market and counterparty credit risks were performed across 65 SIs.
- The investigations resulted in 5800 findings across all risk types
- Out of 253 supervisory decisions, 74% contained at least one limitation, i.e. a restriction or floor to modelled parameters that is lifted only when findings are remediated
- Impact of model limitations and changes is estimated at 12% of RWA, with average impact of -71 basis points on CET1 ratios
As the final conclusive remarks, institutions need to continue to invest in improvement of models not covered in TRIM and to further strengthen the internal validation functions. ECB will continue to be involved through IMIs, model monitoring, and by making further enhancements to regulatory interpretations.