Schlagwort: IRBA

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Observations about the impact of a downturn period on the main components of the LGD Model

The concept of an economic downturn was designed to address potential adverse macroeconomic conditions within estimations of the Internal Ratings-Based (IRB) risk parameter models. The regulatory definition of a downturn was first introduced in the earliest Basel II regulation, however, there were no strict rules and no detailed guidance on how the downturn period should be identified, and how a downturn adjustment should be estimated. The whole regulatory and risk management community within the European Central Bank (ECB) regulated single market spent significant time developing and updating the downturn methodology of their respective financial institutions. In this blog article we will talk about the latest regulatory requirements on this topic and will discuss the impact of a downturn period on the main components of the LGD Model.