In February 2017 the European Central Bank (ECB) published the first version of the Guidance for the review of Internal Models. This guide sets out the ECB's view on the supervisory practices it considers appropriate and explains its interpretation of the European Union (EU) regulatory framework in relation to internal models and general aspects of model governance. Between 2018 and 2019 the ECB conducted a comprehensive review of the EGIM. A further update of the EGIM was published by the ECB in February 2024.


Consultation on revised Guide to internal models

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Executive summary

The ECB has published the final version of its revised guide to internal models (EGIM). Among other things, the revised Guidance clarifies how institutions should incorporate climate and environmental risks into their models and provides clarification for banks wishing to revert to the standardized approach for calculating their risk-weighted assets. With regard to credit risk in particular, the ECB´s revision focuses on probability of default issues. It also includes nuances on the internal market and counterparty models. The final version does not contain any significant changes to the draft published in June 2023.

Main Content

This Technical Note aims to summarize the most relevant aspects of the revised EGIM:

  • In the general aspects chapter, the revised Guidance includes two new sections containing general principles on climate and environmental risks and on the use of a modified or extended model.
  • For credit risk, the ECB clarifies its expectations on a number of issues related to IRB models, on the definition of default and on the calibration of the probability of default (PD).
  • In the market risk chapter, it includes more detail on trading book delimitation and ratings validation requirements, PD and recovery rate assumptions (LGD).
  • Finally, in the chapter on counterparty risk, it incorporates more detail on margin risk periods and two new sections on usability testing and risks not included in the Effective Expected Positive Exposure (EEPE).

Download the technical note on Guide to Internal Models (EGIM) update.