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Summary of TCFD progress report

Taking the 2022 Status Report published in October 2022 as a base for the analysis, this article discusses the current state of implementing TCFD (Task Force on Climate-Related Financial Disclosures) recommendations in the financial sector. We analyse why, despite some challenges, financial institutions should invest in developing methodologies for bridging the gap between the intended and realised shape of the TCFD reports.

EIOPA Application Guidance: Running Climate Change Materiality Assessment and Scenarios in the ORSA

EIOPA published the application guidance on running climate change materiality assessment and using climate change scenarios in the ORSA in August 2022 (“the guidance”). This is optional guidance which supplements EIOPA’s April 2021 Opinion on the supervision of climate change scenarios in ORSA (“the Opinion”). In this article, we discuss chapters 1 and 2, providing an overview of the guidance for the high-level reader.

Non-regulatory credit models – Retention and collection models

In this article we have presented the development of non-regulatory models and reasons why this work is important for risk related problems in financial industry. Those scorecards, even if they are not mandatory requested by the regulators, can significantly improve portfolio and cost control within the institutions. And although they are not directly connected with rating estimation/ECL calculation they can support risk estimation in many other ways.

A practical approach to predicting the IFRS9 Macroeconomic Forward-Looking PD

This article introduced a practical and end-to-end approach to model Point-in-Time PD in a manner that includes Forward-Looking Information for IFRS9 ECL calculation. Different techniques may produce results of varying accuracy depending on a specific dataset. The ‘best’ model should be selected by accessing different evaluation metrics and other aspects, e.g. related to model sensitivity.

Environmental Risks in the Microprudential Framework

Due to the unique features of environmental risks, extensive work is underway at the European and international levels to assess the extent to which they require urgent regulatory measures in addition to already existing frameworks. This article provides an overview of the microprudential framework’s most relevant shortcomings and their potential remediations. Its focus is on Pillar 1 aspects, addressing only the risk types most relevant from materiality viewpoint: credit, market and operational risks.

Machine learning for credit risk IRB models

This article examines the challenges and potential opportunities presented by machine learning when used to compute regulatory capital for credit risk using internal ratings-based (IRB) models. It also gives an overview of machine learning techniques that can be utilised for IRB modelling, as well as the results that can be expected.

2022 ECB Climate and Environmental risks agenda: preliminary indications

In recent years, the ECB has launched targeted actions to include climate and environmental risks in its ongoing supervision and has indicated addressing them in its list of priorities for 2022-2024. This article aims to go through the most relevant steps of the 2022 ECB supervisory C&E agenda and leverages on the results of the 2022 ECB climate stress test to provide preliminary commentary regarding banks’ preparedness for the existing and upcoming requirements.

Data management steps in credit risk modelling

This article discusses the main steps of data preparation, which determine the required fields/attributes that represent the baseline for model development where relevant data quality controls are applied. It will also discuss the ability to collect, analyse and integrate data requirements.

The 2022 ECB climate risk stress test results – a roadmap towards future best practices

On the 8th of July, the ECB published the results of its climate risk stress test (CST). The main goal of this exercise was to gain a clearer view of banks' climate-related vulnerabilities, identify data gaps, and understand how banks are currently managing climate risk. This article discusses the findings of the three modules of this climate risk stress test.

A First Look at Stress Testing Climate Change Risk For Insurers

On 27 January 2022, the European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the methodological principles of developing bottom-up stress tests for climate change risks focusing on the design and calibration of stress tests for climate change risks as part of the future supervisory testing framework. This article examines EIOPA's methodological considerations outlined in this paper.