Direct and indirect costs

With regard to costs to be included in the calculation of the economic loss the proposal follows the distinction between direct and indirect costs, depending on whether or not they are directly attributable to a given exposure. It has been specified that all direct costs should be considered material, whereas immaterial indirect costs may be excluded from the calculation.

To reflect the full level of loss, it is proposed that institutions should look into costs not only after the moment of default but also before that date. If the costs incurred by the institution due to diminished credit quality of the exposures but before recognition of default are not included in the exposure value at the moment of default, they should be taken into account in the calculation of economic loss. Otherwise these costs would not be accounted for in the estimation of risk parameters, and LGD would be underestimated.

Long-run average LGD

1. Forbhreathnú

1.1 Tagairtí

1.2 Ceanglais aitheanta

1.3 Caighdeáin ghaolmhara

2. Ceanglais aitheanta

3. Caighdeáin ghaolmhara

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