37. Where institutions adopt the substitution of risk parameters approach or the substitution of …

Where institutions adopt the substitution of risk parameters approach or the substitution of risk weight approach specified in paragraph 31(a)(ii) and 31(b) respectively, they should:

• (a) collect and store information on the characteristics and performance of the obligor and the exposure and use this information in the estimation of PD of the obligor in accordance with the EBA GL on PD and LGD estimation;
• (b) for internal risk management purposes, consider separately direct exposures to guarantors and exposures secured by unfunded credit protection provided by such entities;
• (c) define a separate scope of application of the LGD models and calculate separately the risk weight for the type of guaranteed exposures or parts of exposures whose PD and LGD risk parameters are substituted or that are assigned the risk weight of the guarantor. For the guaranteed exposures or parts of exposures included in the scope of application of the substitution of risk parameters approach or the substitution of risk weight approach, institutions are not required to estimate the LGDs other than the LGDs of the comparable direct exposures to the guarantors if they adopt the substitution of risk parameters approach.

1. Overview

1.1 References

1.2 Identified Requirements

1.3 Related Standards

2. Identified Requirements

3. Related Standards

• EBA - Published by the European Banking Authority at https://www.eba.europa.eu/