EBA欧洲银行-Guidelines-on-LGD-estimates-under-downturn-conditions_MT_14页_304kb

Summary of EBA/GL/2019/03: Guidelines on the Estimation of LGD for Economic Cycle Impact

Core Content

The EBA/GL/2019/03 document provides detailed guidelines on the estimation of Loss Given Default (LGD) for economic cycle impact, aligning with the European Banking Authority (EBA) standards and regulatory requirements. These guidelines are aimed at ensuring that financial institutions and competent authorities apply consistent and appropriate methods for estimating LGD in the context of economic cycles.

Main Points

• Objective: The guidelines aim to define the requirements for estimating LGD under economic cycle impact, ensuring that institutions apply methods that reflect the economic environment accurately.
• Applicability: The guidelines apply to the Internal Ratings-Based (IRB) approach as outlined in Regulation (EU) No 575/2013 (CRR), specifically to the estimation of LGD for economic cycle impact.
• Competent Authorities: The guidelines are directed at competent authorities and financial institutions as defined in Regulation (EU) No 1093/2010.

Key Information

1. Compliance and Reporting Requirements

• Compliance Obligations: Competent authorities must ensure that financial institutions comply with these guidelines.
• Reporting Obligations: Institutions must notify the EBA of any non-compliance, changes in compliance status, or deviations from the guidelines. Notifications must be submitted using the EBA’s compliance form to compliance@eba.europa.eu with reference "EBA/GL/2019/03".
• Publication: Notifications will be published on the EBA’s website in accordance with Article 16(3) of Regulation (EU) No 1093/2010.

2. Scope and Definitions

• Scope: The guidelines apply to the estimation of LGD under economic cycle impact for all credit facilities.
• Definitions:
  • Economic Cycle Impact (MoC): Refers to the quantification of the impact of economic cycles on LGD.
  • Calibration of LGD for Economic Cycle Impact: Involves the quantification of the calibration factor for each segment.
  • Estimation of LGD for Economic Cycle Impact: Refers to the estimation of LGD at the level of grade or aggregation, after calibration.

3. Implementation

• Effective Date: The guidelines become effective from 1 January 2021.
• Incorporation into Systems: Institutions must incorporate the guidelines into their classification systems, with competent authorities determining the transition period.
• Internal Validation: Institutions must perform internal validation of their LGD estimations, ensuring they are consistent with the final draft of the EBA’s technical standards.

4. General Requirements for Estimating LGD for Economic Cycle Impact

• Calibration: Institutions must calibrate LGD for economic cycle impact based on the relevant segments, using the methodologies specified in the guidelines.
• Impact Analysis: Impact analysis is required for each segment, including evidence of the maximum LGD changes, annual recovery rates, and the impact on the LGD estimates.
• Data Availability: If sufficient data is not available, institutions must use statistical methods or extrapolation to estimate the impact.

5. Estimation Based on Observed Impact

• Observed Impact: Institutions must analyze the observed impact of the economic cycle on LGD estimates, including evidence of maximum LGD changes, annual recovery rates, and the impact on the LGD estimates.
• Validation: The impact analysis must be validated to ensure it is consistent with the observed data and the relevant regulatory requirements.

6. Estimation Based on Estimated Impact

• Extrapolation Method: If observed data is insufficient, institutions may use extrapolation based on historical data to estimate the impact of the economic cycle on LGD.
• Model Calibration: The extrapolation method must be applied consistently with the impact analysis, and the model must reflect the economic cycle's impact on the LGD estimates.

7. Estimation When Observed or Estimated Impact Is Available

• Use of Data: Institutions must use observed or estimated impact data to calibrate LGD for economic cycle impact, ensuring that the methods used are appropriate and reflect the economic conditions.
• Impact Assessment: Institutions must assess the impact of economic cycles on LGD estimates and ensure that the model is adjusted accordingly.

Conclusion

These guidelines provide a comprehensive framework for financial institutions and competent authorities to estimate LGD in the context of economic cycles. They emphasize the importance of calibration, impact analysis, and the use of appropriate methodologies to ensure accurate and consistent LGD estimations, which are essential for effective risk management and regulatory compliance.