ECB Curbs Black Box Models to End Standoff Over Risky Loans

The European Central Bank has ended a long standoff with banks over how much money they need to set aside for risky loans, after scaling back use of a controversial model behind its demand for billions in additional provisions.

The two-pronged probe, featuring a challenger model for banks’ exposure to leveraged lending and a granular review of the potential losses they faced, initially resulted in estimates of a €13 billion ($15.3 billion) shortfall in provisions. That provoked a fierce backlash, and the ECB last year cut those demands to around €7 billion, Bloomberg reported.

The figure has now dropped further ...