2. Институционален обхват и ниво на прилагане

These guidelines aim at achieving a common understanding among the competent authorities across the EU on IRC modelling in order to contribute to a level playing field in line with Annex V of Directive 2006/49/EC, as amended by Directive 2010/76/EU.

2. Institutional scope and level of application

A. Material scope of application

4. Positions subject to calculation of the IRC

The following items should be excluded from the calculation of the IRC:

• a. securitisations;
• b. n-th-to-default credit derivatives; and

10

• c. positions subject to the specific interest rate risk charge and different from securitisations or n-th-to-default credit derivatives if they are positions of the correlation trading portfolio (CTP).

6. Positions in equity and equity derivatives

7. Positions in the institution’s own debt

8. Permanent partial use

B. Individual Modelling

Unless otherwise specified in these guidelines, the soundness standard comparable to IRB applicable to IRC is: a capital horizon of 1 year and a confidence interval of 99.9 %.

All aspects of the IRC approach applied should be thoroughly documented. This includes documentation of any analysis undertaken to motivate assumptions, estimation techniques, proxies, or simplifications. Any such decisions should be justified at the request of the competent authority.

11. Source of ratings

12. Source of PDs and LGDs

C. Interdependence

Institutions‟ IRC models should include the impact of correlations between default or migration events in a way that is consistent with their purpose, which is to capture credit risk correlations between different issuers. The assumptions on which their estimation is based should be consistent with the assumptions used in the simulation. The methodology should be documented and duly justified. The approach should be adequate and conservative enough to capture the interdependence between the risk drivers of credit risk events such as defaults and migrations. This would include, for example, the obligation that, if institutions choose to estimate their correlation parameters from the prices of traded securities, the estimates should be updated frequently.

13

For the purposes of describing its assumptions on the interdependence between risk factors, an institution may select possible copula candidates according to its ability to explain default or migration clusters for historical tail events. The choice of a particular copula should be justified and documented.

15. Systemic risk factors

16. Portfolio concentration

17. Migration matrices

18. Constant level of risk assumption over the one-year capital horizon

19. Hedging

D. P&L valuation

20. Impact of rating change on market prices

The valuation parameters for all rating categories should be estimated in a methodologically consistent way. Since the IRC is a capital requirement for market risks, the valuation of positions under the IRC should be based on currently observable market data. Market data used to evaluate the positions to which the shocks generated by the rating migration are applied should be the latest available market data at the time of computation of the IRC.

E. Liquidity horizon

22. The level at which to define liquidity horizons

23. Key criteria for determining the relevant liquidity horizon

24. Monitoring liquidity horizons - key indicators of the need for review

F. General matters

25. Validation

26. Use Test

27. Documentation

28. IRC approaches based on different parameters

29. Frequency of calculation

Competent authorities should implement these Guidelines by incorporating them within their supervisory procedures within six months after publication of the final guidelines. Thereafter, competent authorities should ensure that institutions comply with them effectively.

23