BaFin Issues Proposal on Own LGD Estimates Under IRB Approach
The Federal Financial Supervisory Authority of Germany (BaFin) published a draft circular that sets out further requirements for own estimates of loss given default (LGD) as part of the internal ratings-based (IRB) approach. With this circular, BaFin intends to adopt EBA guidelines on downturn LGD estimation as well as guidelines on credit risk mitigation for institutions applying the IRB approach with own estimates of LGDs. BaFin plans to incorporate the guidelines into its administrative practice and is requesting comments on the draft circular until November 19, 2021.
EBA had published, in March 2019, the guidelines specifying how institutions should quantify the estimation of LGD appropriate for conditions of an economic downturn; these guidelines focus on requirements for quantification of the calibration target used for downturn LGD estimation. Then, in May 2020, EBA had published the guidelines on credit risk mitigation for institutions applying the advanced IRB approach, with own estimates of LGD; these guidelines clarify the application of the credit risk mitigation provisions, as laid down in the Capital Requirements Regulation (CRR) and applicable to institutions using the advanced IRB approach. The guidelines on credit risk mitigation clarify the eligibility requirements for different credit risk mitigation techniques— namely funded and unfunded credit protection—available to institutions.
Related Links (in English and German)
- BaFin Press Release
- BaFin Consultation
- EBA Guidelines on Downturn LGD Estimation (PDF)
- EBA Guidelines on Credit Risk Mitigation (PDF)
Comment Due Date: November 19, 2021
Keywords: Europe, Germany, Banking, IRB Approach, LGD, Credit Risk, Credit Risk Mitigation, Economic Downturn, CRR, Basel, Loss Given Default, Regulatory Capital, EBA, BaFin
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
EBA Launches Stress Tests for Banks, Issues Other Updates
The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
