ECB Guide on assessment methodology (EGAM) Assessment methodology for the

General Information

- Title: ECB Guide on assessment methodology (EGAM) – Assessment methodology for the internal model method for calculating exposure to counterparty credit risk

- Author: European Central Bank - Banking Supervision (SSM)

- Date: June 2026

- Type: guide

- Scope: assessment methodology for the internal IMM (Internal Model Method) used by financial institutions to calculate exposure to counterparty credit risk (CCR) within the European regulatory framework (CRR), excluding the advanced method for credit valuation adjustment risk (A-CVA) replaced by SA-CVA since 2025

- Target population: banking institutions subject to ECB prudential supervision

- Sector: European banking sector

- Period: regulatory framework and practices effective from 2025-2026

- Document of 84 pages, summary based on the first 42 pages provided

Executive Summary

The EGAM guide published by the ECB in June 2026 details the assessment methodology applied by the ECB to verify the compliance of internal IMM models used by banks to measure their exposure to counterparty credit risk (CCR). This topic is crucial as CCR, notably on derivatives and repo operations, represents a major systemic risk, as highlighted since the global financial crisis. The guide aims to ensure that internal models comply with the CRR regulation requirements, notably article 283, thus guaranteeing the robustness and reliability of exposure calculations used for regulatory capital requirements.

The main findings are that the ECB applies a detailed methodology, structured into ten chapters, covering notably the organization and governance of model validation, exposure quantification, use tests, documentation, data management, as well as IT processes. The guide specifies criteria for sequential implementation of the IMM, independence and frequency requirements for validation, internal controls, and modalities for handling transactions temporarily or permanently excluded from the IMM.

The conclusions emphasize the importance of full application of the guide to ensure consistency of assessment, while specifying that complementary methodologies may be applied depending on the complexity and materiality of the models. The guide does not replace applicable regulation but clarifies the ECB’s interpretation and expectations.

Implicit recommendations concern the necessity for institutions to have solid governance, complete and auditable documentation, independent and rigorous validation, as well as effective use of the model in risk management and decision-making. The ECB also plans monitoring of remediation plans in case of temporary non-compliance.

This guide is a key tool for risk managers, data scientists, and supervisors, enabling them to understand the ECB’s precise expectations in assessing IMM models and to prepare compliance and self-assessment files accordingly.

Context and Objectives

The EGAM guide was developed to respond to the increased need for prudential supervision of counterparty credit risk (CCR) under the Basel III regulatory package and the European CRR regulation. CCR is identified as a major financial risk potentially causing institutional failures and systemic risks. Regulation requires banks to obtain authorization to use internal models (IMM) for CCR exposure calculation, subject to strict requirements.

The guide’s objective is to provide ECB supervisors with a clear and transparent methodology to assess IMM model compliance, covering all phases of investigation, initial approval, material extensions and modifications, as well as ongoing monitoring of approved models. It relies on CRR texts, notably article 283, and complements existing guides (EGIM for internal models, EGMA for materiality assessment of modifications).

The guide does not create new rules but clarifies the interpretation and evaluation methods used by the ECB, consistent with European standards, notably those of the EBA. It is designed to be applied in full to ensure assessment consistency, while allowing scope adaptation depending on the nature of investigations.

Limitations relate to the current absence of a specific RTS for IMM assessment in the CRR, which may evolve with future European regulations. The guide also excludes the advanced method for credit valuation adjustment risk (A-CVA), now replaced by SA-CVA.

Summary of Key Points by Theme

Theme 1: Regulatory methodologies and legal framework

- The guide relies on the CRR, notably article 283, and complements existing RTS for IRB (Internal Ratings-Based) and IMA (Internal Model Approach) for market risk.

- No mandatory RTS exists for IMM CCR assessment, but the ECB anticipates possible future EBA regulation.

- The guide follows the structure of IRB RTS, adapted to CCR and IMM specificities (p. 7-10).

Theme 2: Sequential implementation and IMM coverage

- IMM implementation must initially cover at least 50% of risk-weighted assets (RWA) and plain vanilla transactions.

- The target is to reach over 65% RWA coverage and 70% of the number of transactions under IMM within three years.

- Excluded transactions must be justified by data constraints or sufficiently conservative non-IMM methods (p. 10-11, 20-23).

Theme 3: Organization and governance of validation

- The validation function must be independent from development and trading teams, with direct reporting to senior management.

- Validation must be comprehensive, regular (at least annual), and cover all key model aspects.

- Validation reports must contain conclusions, recommendations, action plans, and rigorous follow-up (p. 23-29).

Theme 4: Internal governance, risk control, collateral management, and audit

- The guide details roles and responsibilities of management, CCR control units, collateral management, and internal audit.

- These units must be independent from trading activities, have adequate resources, and provide regular and detailed reports to management.

- Internal audit must perform annual reviews covering the entire CCR management system (p. 30-36).

Theme 5: Use test

- The IMM model must be actively used in daily CCR management, credit granting decisions, internal capital allocation, and governance functions.

- Effective model use must be demonstrated for at least one year before approval.

- Consistency between data used for regulatory calculation and internal management is verified (p. 35-39).

Theme 6: Documentation and model design

- Documentation must be complete, accurate, approved by management, and auditable by third parties.

- It must cover model scope, data used, calibration processes, expert judgments, technical specifications of stochastic models, pricing functions, limits, and associated risks.

- Documentation must allow reproduction of calculations and understanding of assumptions (p. 39-43).

Theme 7: Exposure quantification

- Exposures must be calculated taking into account netting agreements, collateral, margins, and risk periods (MPOR).

- Modeling must integrate specific risks such as wrong-way risk (adverse correlation risk between exposure and default probability).

- The guide includes specific requirements for margined transactions and securities financing transactions (SFT) (p. 11-14).

Theme 8: Methodological validation and stress testing

- Validation includes back-tests on both exposures and market values, sensitivity analyses, and plausibility tests.

- Regulatory and internal stress tests are required to assess model robustness against extreme scenarios (p. 12, 14).

Theme 9: Data maintenance and IT processes

- The guide emphasizes data quality, consistency, and maintenance, as well as IT system performance supporting the IMM.

- Regular controls and continuity plans must be in place (p. 12, 74).

Main Findings and Lessons Learned

Findings:

- CCR is a major systemic risk requiring rigorous supervision (p. 5).

- The EGAM guide formalizes the ECB’s assessment methodology for IMM models in accordance with the CRR (p. 5-6).

- IMM implementation must respect precise initial and progressive coverage thresholds (p. 10-11).

- Validation must be independent, comprehensive, regular, and rigorously documented (p. 23-29).

- The model must be effectively used in risk management and decision-making (p. 35-39).

Assumptions:

- The current absence of a specific RTS for IMM assessment leaves room for an ECB-framed interpretation, likely to evolve (p. 7-9).

- Representativeness of sub-portfolios for tests is assumed sufficient if justified by the institution (p. 16).

Interpretations:

- The ECB adopts a pragmatic approach, combining regulatory requirements and operational realities of institutions (p. 10-11).

- Validation independence is essential to avoid conflicts of interest and ensure model reliability (p. 26).

Uncertainties:

- Future regulatory developments could modify requirements or introduce specific RTS (p. 7).

- Model and portfolio complexity may require methodological adaptations not exhaustively covered in the guide (p. 6).

Conclusions and Author’s Recommendations

The EGAM guide must be applied in full to guarantee the consistency and effectiveness of IMM model assessments. Partial application is discouraged as it risks compromising control quality.

The ECB recommends institutions to:

- Maintain complete, accurate, up-to-date, and auditable documentation covering all aspects of the IMM model.

- Ensure independence, competence, and adequate resources of validation functions, CCR control, collateral management, and internal audit.

- Demonstrate effective use of the model in risk management, decision-making, and internal capital allocation, with at least one year of history before approval.

- Respect sequential IMM implementation plans, justifying any transaction exclusions by objective constraints.

- Establish robust monitoring, reporting, and remediation processes in case of non-compliance, with senior management commitment.

The ECB emphasizes that the guide does not replace applicable regulation but clarifies its interpretation, and that it will be adapted according to future regulatory developments.

Priorities are rigor in validation, governance, and documentation, as well as demonstration of effective model use. Deadlines relate to authorization requests, model extensions, and periodic controls.