On 22nd May 2018 the European Banking Authority (EBA) launched consultations on the second draft regulatory technical standards (RTS) specifying an economic downturn and on Guidelines related to the estimation of loss given default (LGD) appropriate for conditions of an economic downturn.
The draft RTS specify the nature, severity and duration of an economic downturn and do not deal with quantification and modelling aspects. The Guidelines focus on the estimation of the LGD in a situation of economic downturn. Several approaches are allowed and are classified according to the availability of loss data for the estimations. In situations with limited data availability, more prescriptive approaches are applied.
This package is part of the EBA's review of the IRB approach aiming at reducing the unjustified variability in risk-weighted exposures.
The consultations run until 22 June 2018.
Update in the article EBA Guidelines on the LGD under an economic downturn