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On 30 March 2026, the European Central Bank (ECB) announced reforms to streamline how it supervises banks' internal models for credit risk assessment. The ECB is shifting from an ex ante (pre-implementation) to an ex post (post-implementation) assessment approach, enabling banks to implement material changes to their internal models more quickly and predictably without maintaining parallel old and new models during the supervisory review period. From 1 October 2026 onwards, banks will be permitted to implement material changes to their internal models for credit risk shortly after submitting a complete application package, provided that the bank's internal control function confirms compliance with regulatory requirements and implementation readiness. Where model changes result in lower risk weights, banks will receive fast approval but the regulatory capital benefit will be constrained by a floor set at 98 percent of current risk weights. This floor can be lifted only after the ECB completes a targeted on-site investigation. The ECB retains discretion to follow the standard approval process for sensitive cases, requiring banks to await on-site investigation outcomes before implementation. The European Banking Authority (EBA) has simultaneously released revised Regulatory Technical Standards recalibrating materiality criteria for internal model changes, with greater reliance on quantitative thresholds and targeted qualitative triggers. This substantially reduces the number of changes classified as material and subject to ECB approval. Under the new approach, the ECB will conduct on-site investigations primarily where higher risks warrant closer scrutiny, rather than automatically triggering investigations for all material model changes. This reform forms part of the ECB's "Next-level supervision" project to enhance efficiency, effectiveness, and risk-based oversight while maintaining supervisory standards and bank resilience. REFERENCES: European Central Bank. (2026, March 30). ECB streamlines how it supervises banks' internal models. Retrieved from https://www.ecb.europa.eu/press/pr/date/2026/html/ecb.pr260330~3d3f9b2b91.en.html

On March 30, 2026, the European Central Bank (ECB) announced that it is streamlining how it assesses changes to banks’ internal models for credit risk. As the ECB explained, it is shifting from an ex ante to an ex post assessment, making the approval process faster and more predictable for banks. This reform allows banks to implement model changes quickly, without having to maintain old and new models in parallel while awaiting supervisory review. This is subject to safeguards to keep banks resilient. In turn, from October 1, 2026, the ECB will allow banks to implement material changes to their internal models for credit risk shortly after submitting a complete application package. This is conditional on a bank’s internal control function credibly confirming that the revised model complies with regulatory requirements and that the bank is ready to implement the change.

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European Central Bank Streamlines Supervision of Banks' Internal Credit Risk Models

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European Central Bank Announces Streamlining of Supervising Banks' Internal Models