Since the publication of Basel II in 2004, and its first application in 2007-2008, banks have been considering the so-called margin of conservatism (MoC) in the estimation of the risk parameters: Probability of Default (PD), Loss Given Default (LGD), and Credit Conversion Factor (CCF). However, there have been no concrete technical guidance about the technical implementation until the European Banking Authority (EBA) published guidelines (GLs) on PD estimation, LGD estimation and the treatment of defaulted exposures in November 2017.
In one of the previous episodes, the Basel IV Channel focused on the new methodology for the parameter estimation for the IRB approach, especially on the LGD 2.0. We have received a lot of feedback on this topic. Therefore, we have decided to discuss the LGD methodology further.
Our latest Basel IV-Channel Episode covers:
“Downturn LGD estimation”
Our latest Basel IV Channel episode deals with credit risk, more specifically the IRB approach. Looking at the IRB Approach, not only the proposals of the Basel Committee must be considered, but also those of other institutions such as European Banking Authority (EBA) and European Central Bank (ECB). The risk parameters estimation is one of the challenges for banks.