General Information & Client Services
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
May 22, 2018

EBA published two consultation papers: one on the draft regulatory technical standards specifying an economic downturn and the other on a set of guidelines for the estimation of loss given default (LGD) appropriate for conditions of an economic downturn. The regulatory technical standards specify the nature, severity, and duration of an economic downturn. The consultations run until June 22, 2018. The regulatory technical standards shall enter into force on December 31, 2019.

The draft regulatory technical standards now focus solely on the identification approach, as a result of the feedback received on the first consultation (published in March 2017). The draft regulatory standards require institutions to consider relevant macroeconomic and credit factors when specifying the nature of an economic downturn. The severity and duration of an economic downturn should be specified, taking into account the time series for the identified relevant macroeconomic and credit factors. The draft standards ensure that an economic downturn for comparable portfolios are subject to the same economic downturn. The draft standards have been developed in accordance with Articles 181 (3)(a) and 182 (4)(a) of the Capital Requirements Regulation (CRR), which mandate EBA to draft regulatory technical standards to specify the nature, severity, and duration of an economic downturn referred to in paragraphs 181 (1)(b) and 182(1)(b).
 
The draft guidelines supplement the regulatory technical standards and clarify how institutions should quantify LGD estimates appropriate for an economic downturn identified according to the draft regulatory technical standards. The draft guidelines focus on the methods institutions should use to quantify downturn LGD estimates. Several approaches are allowed and will be driven by the availability of loss data for the estimations. In situations with limited data availability, more prescriptive approaches are applied. The guidelines addresses downturn LGD estimation, taking into account the specificities of the institutions' processes, underwriting standards, and general response to adverse economic conditions. The guidelines will be included into the guidelines on Probability of Default, LGD estimation, and defaulted assets and aligned in structure with the subject matter, scope of application, addressees, definitions, and application date.
 
This package is part of the broader work of EBA on the review of the internal ratings-based (IRB) approach, which aims to reduce the unjustified variability in the outcomes of internal models while preserving the risk-sensitivity of capital requirements. 

 

Related Links

Comment Due Date: June 22, 2018

Effective Date: December 31, 2019 (Standards)

Keywords: Europe, EU, Banking, IRB Approach, Regulatory Technical Standards, LGD Estimation, Guideline, EBA

Related Insights
News

US Agencies Propose Rule on Appraisals for Real Estate Transactions

US Agencies (FDIC, FED, and OCC) proposed a rule to increase the threshold level at or below which appraisals would not be required for the residential real estate transactions from USD 250,000 to USD 400,000. Comments will be accepted for 60 days from publication in the Federal Register.

December 07, 2018 WebPage Regulatory News
News

EBA Single Rulebook Q&A: First Update for December 2018

This week one answer was published as part of the Single Rulebook Questions and Answers (Q&A).

December 07, 2018 WebPage Regulatory News
News

FED Updates Reporting Form and Instructions for FR Y-14Q

FED published the updated reporting form FR Y-14Q for Capital Assessment and Stress Testing, along with the associated instructions.

December 06, 2018 WebPage Regulatory News
News

PRA Finalizes Policy on Minor Amendments to Regulatory Reporting

PRA published the policy statement PS30/18, which contains the final policy following a consultation (CP16/18) on certain amendments to regulatory reporting.

December 05, 2018 WebPage Regulatory News
News

GM of BIS Examines Regulatory Implications of Big Tech in Finance

Agustín Carstens, the General Manager (GM) of BIS, during the keynote address at the FT Banking Summit in London, spoke about new challenges and policy implications of big tech in finance.

December 05, 2018 WebPage Regulatory News
News

ACPR Publishes Version 2.8.1 of the CRD IV Taxonomy

ACPR notified that version 2.8.1 of the Capital Requirements Directive (CRD) IV Data Point Model taxonomy and version 2.1.0 of the Anti-Money Laundering and Terrorist Financing (LCB-FT) taxonomy have been made available.

December 04, 2018 WebPage Regulatory News
News

European Council Endorses Package on CRD 5, CRR 2, BRRD 2, and SRMR 2

European Council endorsed the agreement achieved between the presidency and the Parliament on the key measures of a comprehensive legislative package aimed at reducing risks in the banking sector in EU.

December 04, 2018 WebPage Regulatory News
News

BCBS Report Examines Cyber Resilience Practices Across Jurisdictions

BCBS published a report that identifies, describes, and compares the range of observed bank, regulatory, and supervisory cyber-resilience practices across jurisdictions.

December 04, 2018 WebPage Regulatory News
News

EIOPA Publishes Q&A on Regulations and Guidelines

EIOPA published new sets of questions and answers (Q&A) on guidelines, implementing regulations, and delegated regulations applicable to insurers in Europe.

December 03, 2018 WebPage Regulatory News
News

ESMA Registers A.M. Best (EU) Rating Services as Credit Rating Agency

ESMA, the direct supervisor of credit rating agencies (CRAs) in EU, has registered A.M. Best (EU) Rating Services B.V. as a CRA under the CRA Regulation, with effect from December 03, 2018.

December 03, 2018 WebPage Regulatory News
RESULTS 1 - 10 OF 2316