7.3.2.2 Current economic circumstances

For the purposes of considering current economic circumstances in their EL BE estimates, as required by Article 181(1)(h) of Regulation (EU) No 575/2013, institutions should take into account economic factors, including macroeconomic and credit factors, relevant for the type of exposures under consideration.

The EL BE should be estimated on the basis of the long-run average LGD, referred to in paragraph 180 and no further adjustments to reflect current economic conditions should be performed where any of the following conditions is met:

• (a) the model includes directly at least one macroeconomic factor as a risk driver;
• (b) at least one material risk driver is sensitive to economic conditions;
• (c) the realised LGD for defaulted exposures, referred to in paragraph 178, is not sensitive to the economic factors relevant for the type of exposures under consideration.

Where none of the conditions listed in paragraph 184 is met, institutions should adjust the long run average LGD for defaulted exposures to reflect current economic conditions. In this case institutions should document separately the long-run average LGD for defaulted exposures, referred to in paragraph 180, and the adjustment to current economic conditions.