The European Central Bank will simplify and speed up approvals for changes to banks' internal credit risk models, easing a supervisory process that can delay capital benefits and trigger lengthy on-site inspections, it said on Monday. Banks currently must seek the ECB's prior approval for any material change in their internal models, a requirement that can spur on-site investigations and force lenders to run their old and new models in parallel for extended periods. Make sense of the latest ESG trends affecting companies and governments with the Reuters Sustainable Switch newsletter. Sign up here. Advertisement · Scroll to continue Under new rules effective from October 1, banks will be allowed to implement material changes to their internal models shortly after submitting their application, and fewer of these changes will trigger an on-site review, the ECB said. If a new model produces lower risk weights, banks will still get a quick go-ahead for their use, but any capital benefits will be capped until the ECB has assessed the model on-site. "Under the new approach, the ECB will conduct these on-site investigations of internal models primarily where higher risks warrant closer scrutiny," the ECB said in a statement. Advertisement · Scroll to continue "Material model changes will no longer automatically trigger an on-site investigation." Separate guidelines from the European Banking Authority, also on Monday, reduce the number of model changes classified as material and subject to ECB approval. The ECB, which supervises just over 100 of the euro zone's biggest banks, said that for sensitive cases, it retained the option to follow the standard approval process, under which banks must wait for the outcome of a dedicated on-site investigation before implementation. The ECB last year conducted 74 on-site investigations of internal models, 90% of which were triggered by banks requesting initial model approvals or material model changes.
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