Article 20 | Delegated Regulation 2022/439

Article 20 - Use test in the internal capital allocation

Article 20

Use test in the internal capital allocation

1. When assessing whether internal ratings and default and loss estimates of the rating systems used in the calculation of own funds requirements play an essential role in the institution’s internal capital allocation as referred to in Article 144(1)(b) of Regulation (EU) No 575/2013, competent authorities shall assess whether these ratings and estimates play an important role in:

(a)	the assessment of the amount of internal capital that the institution considers adequate to cover the nature and level of the risk to which it is or might be exposed as referred to in Article 73 of Directive 2013/36/EU;

(b)	the allocation of the internal capital among types of risk, subsidiaries and portfolios.

2. Where institutions take into consideration internal ratings and default and loss estimates for the purpose of calculating the cost of risk to the institution for budgetary purposes, competent authorities shall assess how taking those elements into consideration contributes to those ratings and estimates playing an essential role in the institution’s internal capital allocation.

Recitals

CHAPTER 1 - GENERAL PROVISIONS ON THE ASSESSMENT METHODOLOGY (Article 1-5)

CHAPTER 2 - ASSESSMENT METHODOLOGY FOR SEQUENTIAL IMPLEMENTATION PLANS AND PERMANENT PARTIAL USE OF THE STANDARDISED APPROACH (Article 6-8)

CHAPTER 3 - ASSESSMENT METHODOLOGY FOR THE FUNCTION OF VALIDATION OF INTERNAL ESTIMATES AND OF THE INTERNAL GOVERNANCE AND OVERSIGHT OF AN INSTITUTION (Article 9-17)

CHAPTER 4 - ASSESSMENT METHODOLOGY FOR USE TEST AND EXPERIENCE TEST (Article 18-22)Article 18 - General Article 19 - Use test in risk management, decision-making and credit approval process Article 20 - Use test in the internal capital allocation Article 21 - Use test in corporate governance functions Article 22 - Experience test

CHAPTER 5 - ASSESSMENT METHODOLOGY FOR ASSIGNMENT OF EXPOSURES TO GRADES OR POOLS (Article 23-25)

CHAPTER 6 - ASSESSMENT METHODOLOGY FOR IDENTIFICATION OF DEFAULTS (Article 26-29)

CHAPTER 7 - ASSESSMENT METHODOLOGY FOR RATING SYSTEMS DESIGN, OPERATIONAL DETAILS AND DOCUMENTATION (Article 30-40)

CHAPTER 8 - ASSESSMENT METHODOLOGY FOR RISK QUANTIFICATION (Article 41-58)

CHAPTER 9 - ASSESSMENT METHODOLOGY FOR ASSIGNMENT OF EXPOSURES TO EXPOSURE CLASSES (Article 59-62)

CHAPTER 10 - ASSESSMENT METHODOLOGY FOR STRESS TEST USED IN ASSESSMENT OF CAPITAL ADEQUACY (Article 63-66)

CHAPTER 11 - ASSESSMENT METHODOLOGY FOR THE CALCULATION OF OWN FUNDS REQUIREMENTS (Article 67-71)

CHAPTER 12 - ASSESSMENT METHODOLOGY FOR DATA MAINTENANCE (Article 72-75)

CHAPTER 13 - ASSESSMENT METHODOLOGY OF INTERNAL MODELS FOR EQUITY EXPOSURES (Article 76-82)

CHAPTER 14 - ASSESSMENT METHODOLOGY FOR MANAGEMENT OF CHANGES TO RATING SYSTEMS (Article 83-84)

CHAPTER 15 - FINAL PROVISION (Article 85)

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Article 20 - Use test in the internal capital allocation

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