We fear that such proposal could increase legal uncertainty and even discourage banks from providing credit in a moment where financing of the real economy is crucial, as underlined also by the European Commission. In this context institutions need greater stability and consistency of regulation, and should not be driven back to a Basel I approach after regulatory developments that have vastly improved IRB models also under strict supervisory assessment.
Retail banks that apply internal models would be heavily penalised. Indeed, retail banking, which is the least risky activity, benefits from internal models capital allocation and their more accurate availability of historical data for credit risk. Such a proposal would penalise retail banks and the financing of the local economy, especially as regards to SMEs.
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