Status update on TRIM – General topics and credit risk review

European Central Bank (ECB)

In February 2017, the ECB issued a Guide to the TRIM addressed to the management of significant institutions, which sets out its view on the appropriate supervisory practices and spells out how the ECB intends to interpret the relevant EU law on internal models and on general model governance topics. The Guide to the TRIM covers four main chapters: general topics, credit risk, market risk, and counterparty credit risk.


Status update on TRIM

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According to this Guide, the ECB carried out a SSM-wide multi-year project (2016-2019) which aims to assess whether the internal models currently used by significant institutions to calculate their Pillar 1 own fund requirements comply with the applicable regulation, and whether the risk estimates they produce are reliable and comparable.

To that end, a sequential approach was implemented: i) a review of how the institutions implemented the non-model-specific provisions contained in the CRR was completed by the end of 2017; and ii) on-site investigations are being performed to review the compliance of selected models with the CRR requirements (all internal models used for market risk and counterparty credit risk, as well as the most material and critical models for credit risk). In 2017, 92 on-site investigations were launched and by the end of June 2018, a total of 115 TRIM investigations across 12 countries took place.

In this context, the ECB published in June 2018 a Letter on the status update on TRIM, addressed to banks, which covered an overview of outcome of general topics review and interim update on preliminary results of credit risk on-site investigations.

This Technical Note summarises the outcomes included in the ECB Status update on TRIM. 

Executive Summary

This ECB Letter on the status update on TRIM provides an overview of the outcome of the general topics review as well as a preliminary update on the outcomes that have emerged so far from the TRIM on-site investigations, with a focus on credit risk.

Scope of application

Credit institutions.

Main content

This document on the status update on TRIM covers the following aspects:

  • General topics review. The ECB found certain shortcomings in its general topics’ review on, for example, the absence of a model change policy at the institution, or the lack of evidence of annual back-testing for some rating systems.
  • Credit risk investigations. The ECB provided an overview of the findings identified for PD,  such as those related to the long-run average and risk differentiation, as well as an overview  of the findings identified for LGD, such as those related to the calculation of realised LGD and the estimation of long-run average LGD.

Download the technical note by clicking here.