In particular, as to non-defaulted exposures, the draft Guidelines detail the estimation of the probability of default (PD) and the loss given default (LGD) parameters, including specification of main definitions, requirements for the data used and clarifications on modelling techniques. In case of defaulted assets, these Guidelines provide clarifications on the estimation of risk parameters such as best estimate of expected loss (ELBE) and LGD in-default based on the requirements specified for the LGD for non-defaulted exposures.
In addition, these Guidelines specify other aspects that are common to all risk parameters, such as the judgmental component when developing and applying internal models, the appropriate level of conservatism that should be included in risk parameters, as well as the need for regular reviews of the models so as to ensure the necessary changes are applied in case of their deteriorated performance.
Considering the material changes to numerous rating systems that these Guidelines may entail, the proposed time for their implementation is end-2020.
Comments to this consultation can be sent to the European Banking Authority (EBA) by 10 February 2017. A public hearing and workshop will then take place at the EBA premises on 19 January 2017 from 10:00 to 16:00 UK time.
Press release
Consultation paper
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