1. Transition matrices for modelling the rating migration process should be based on historical …

Transition matrices for modelling the rating migration process should be based on historical migration data using either external sources (i.e. rating agencies) or internal sources. Matrices from external sources should be preferred in cases where internal historical data is sparse. Institutions should ensure that the amount of historical data is sufficient to derive robust, accurate and statistically consistent estimates. Institutions should validate the robustness of transition matrices particularly in relation to higher rating categories, where a few severe downgrades or defaults can affect the migration frequency significantly. In accordance with the requirement for a „standard of soundness comparable to IRB‟ which the CRD establishes, a minimum historical observation period of 5 years is required.

1. Overview

1.1 References

1.2 Identified Requirements

1.3 Related Standards

2. Identified Requirements

3. Related Standards

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