EBA Consults on Specification of an Economic Downturn

March 1, 2017

The EBA has launched a public consultation on its draft Regulatory Technical Standards (RTS) specifying the nature, severity and duration of an economic downturn and propose a methodological approach to identify them. Institutions shall estimate the downturn loss given default (LGD) and conversion factor (CF) according to these three conditions.

Although these draft RTS specify an approach to identify the three conditions, they do not cover the methods used by institutions to reflect such conditions into downturn LGD and CF estimates. As such, the consultation paper is also proposing, in a separate section, a method to be used regarding the LGD parameter as a proposed amendment to the downturn adjustment section of the Guidelines on PD and LGD estimation and the treatment of defaulted assets.

For further details, please see full press release on the EBA website here.