Treatment of cases with no loss or positive outcome

Finally, it is also proposed that where the calculation of realised LGD results in a negative number, i.e. where profit has been realised on a defaulted exposure, this should be floored at zero in the calculation of observed average LGD and long-run average LGD. This floor should be applied at the level of individual observation, as it would not be appropriate to allow any netting effects in that regard between the observations included in the RDS, especially where these observations may have been observed in different periods of time.

Calibration of the estimates to long-run average LGD

While the flexibility is left for institutions to choose an appropriate estimation methodology, it is also necessary that, regardless of this choice, the estimates be calibrated to the long-run average LGD. The calibration may be performed either on a portfolio level or on a grade or pool level, depending on the chosen estimation methodology. In both cases, the calibration sample, i.e. the sample of exposures used to compare the average LGD estimates with the long-run average LGD, should be the same as the sample used to calculate the long-run average LGD. In accordance with Article 181(1)(b) of the CRR, these estimates reflecting the long-run average LGD should be used whenever they are more conservative than the estimates reflecting the downturn conditions.

1. Yleiskatsaus

1.1 Viittaukset

1.2 Tunnistetut vaatimukset

1.3 Liittyvät standardit

2. Tunnistetut vaatimukset

3. Liittyvät standardit

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