The European Banking Authority published a consultation paper on the specification of the nature, severity and duration of an economic downturn under the Capital Requirements Regulation. The CRR requires firms to use loss given default (LGD) and conversion factor (CF) estimates appropriate for an economic downturn if those are more conservative than the respective long-run average. The EBA consultation paper includes proposed draft Regulatory Technical Standards and amended Guidelines on probability of default (PD) and LGD estimation. The proposed draft RTS set out the downturn conditions that firms must use to estimate the downturn LGDs and conversion factors. In addition, the EBA is proposing to amend the proposed Guidelines on PD and LGD estimation and the treatment of defaulted assets to include a method for firms to use to reflect the downturn conditions into downturn LGD and CF factors. The consultation closes on May 29, 2017.

View the consultation paper.

View the proposed Guidelines on PD and LGD estimation and the treatment of defaulted assets.