Chapter 2: Subject matter, scope and definitions

These GL apply to all models for which an institution received permission to use under the IRB Approach. Where institutions do not use own estimates of LGD (in accordance with the ‘Foundation’ IRB Approach) Chapters 6 and 7 do not apply, but all other requirements, including those specified in Chapters 4, 5, 8 and 9, apply with regard to PD estimates. The applicable requirements are expected to be assessed by the competent authorities within the process of granting initial permission to use the IRB Approach, assessment of material changes to the rating systems in accordance with Article 143(3) of the CRR, or ongoing reviews of the use of the IRB Approach.

The definitions specified in this section are used throughout the GL. The terms ‘PD model’ and ‘LGD model’ have been defined in a broad manner, referring to all data and methods related to both risk differentiation and risk quantification. In the case of LGD models, it has to be noted that the definition encompasses not only the data and methods used to derive LGD estimates for non-defaulted exposures, but also the risk parameters applicable to defaulted exposures such as EL BE and LGD in-default. This is based on the CRR requirements, which have also been defined jointly for performing and defaulted exposures.

The definitions also specify the main stages of the estimation of risk parameters, including model development and calibration, as well as the application of risk parameters. These definitions are particularly relevant for understanding which parts of the GL apply to which processes, as also presented in the overview section. These definitions do not refer to the design of grades or pools, as this aspect may be part of model development or of calibration, depending on the applied methodology.

1. Forbhreathnú

1.1 Tagairtí

1.2 Ceanglais aitheanta

1.3 Caighdeáin ghaolmhara

2. Ceanglais aitheanta

3. Caighdeáin ghaolmhara

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