The European Banking Authority (EBA) released its 2025 reports on market and credit risk benchmarking, highlighting progress and areas for supervisory focus across EU banks’ internal models.
The European Banking Authority (EBA) has published its 2025 reports on the annual market and credit risk benchmarking exercises. These reports highlight ongoing progress in the consistency and reliability of banks’ internal models across the European Union, while identifying areas requiring supervisory attention as key regulatory reforms near full implementation.
For market risk, results show stable and low dispersion in key risk metrics, reflecting improved data quality and modeling practices. The credit risk assessment indicates a gradual reduction in the variability of the probability of default (PD) estimates over the long term.
The 2025 EU market risk benchmarking indicates tangible improvements in data quality, consistency, and comparability across banks. The assessment is presented in two reports covering the Internal Model Approach (IMA) and the Alternative Standardised Approach (ASA), enhancing transparency and analysis, especially as the ASA is expected to play a larger role under the upcoming Fundamental Review of the Trading Book (FRTB).
The IMA report, covering 43 EU banks across 13 jurisdictions, shows significant improvements in data quality for Initial Market Valuation (IMV), with reduced dispersion across asset classes. Variability in Value-at-Risk (VaR) remains low, but higher dispersion persists in stressed VaR (sVaR) and Incremental Risk Charge (IRC).
The ASA results confirm its role as a more stable and comparable framework, with continued improvements in consistency. Notably, dispersion in the Sensitivities-Based Method (SBM) has decreased to an average of 8%. Seven banks were flagged for further supervisory review.
The credit risk benchmarking shows a stable overall picture with structural improvements linked to ongoing reforms. The share of Exposure at Default (EAD) under the Internal Ratings Based (IRB) approach has gradually declined. The number of approved material model changes across asset classes has increased, indicating progress in implementing the IRB roadmap.
Between 2015 and 2024, probability of default (PD) variability decreased across several asset classes, while loss given default (LGD) variability remained broadly stable with a slight downward trend. The long-term default rate, used to assess portfolio risk, partly explains PD variability. Variability in LGD is only partly explained by collateralization levels, such as loan-to-value ratios.
The EBA’s annual benchmarking exercises are essential tools for supervisory oversight, assessing the consistency of internal models across EU banks. They support supervisory efforts, promote best practices, and help ensure a level playing field. These exercises also complement the EBA’s broader IRB reform roadmap, aligned with Basel III finalization, to improve model accuracy and reliability.
