Current economic circumstances

For the purposes of considering current economic circumstances, the GL clarify that institutions should take into account economic factors, including macroeconomic and credit factors, that are relevant for the type of exposures under consideration. In this context, institutions should obtain their EL BE estimates through an adjustment to the long-run average LGD for defaulted exposures, where necessary, consistently with the estimation of LGD in-default, such that a meaningful application of the risk weight formula is ensured. The difference between LGD in-default and EL BE determines the level of unexpected loss, which is used for computing the risk weight. Therefore, the GL aim to ensure consistency of the estimation approaches used for the two risk parameters.

To avoid excessive use of adjustments and hence increased subjectivity of resulting estimates, it is specified in the GL that the adjustment should be applied only where necessary. The adjustment may be necessary where the observed sensitivity of realised LGDs to economic conditions is not reflected in the EL BE estimates, either through direct use of macroeconomic factors in the model or through risk drivers which are sensitive to economic conditions. In all other cases, it is considered that the EL BE estimates based on the long-run average LGD for defaulted exposures sufficiently reflect current economic conditions, and that no further adjustments to address this issue should be made. Where the adjustment is applied, it should be adequately documented, including its rationale and calculation.

1. Overzicht

1.1 Referenties

1.2 Geïdentificeerde eisen

1.3 Gerelateerde standaarden

2. Geïdentificeerde eisen

3. Gerelateerde standaarden

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