Question ID
2023_6794
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Credit risk
Article
179
Paragraph
1
Subparagraph
(f)
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
EBA/GL/2017/16 - Guidelines on PD estimation, LGD estimation and the treatment of defaulted exposures
Article/Paragraph
43 (b)
Name of institution / submitter
Jan Henrik Wosnitza
Country of incorporation / residence
Germany
Type of submitter
Individual
Subject matter
Consideration of default dependencies for MoC C quantification
Question

Do financial institutions have to incorporate the variability of the macro-economic factor (of the Vasicek model) into the quantification of the MoC C? In other words, do financial institutions have to incorporate default dependencies between obligors into the MoC C quantification?

Background on the question

The European banking regulation currently seeks to reduce the unjustified variability in estimates of risk parameters (and, ultimately, in own funds requirements) stemming from different modelling practices and interpretations of fundamental concepts across IRBA banks. Despite this objective of homogenization and despite the general nature of the MoC C, the EBA Guidelines on PD estimation, LGD estimation and the treatment of defaulted exposures do “not impose a fixed methodology, which might for example lead to disproportionate MoC for low default portfolios”. This lack of regulatory guidance on how to quantify the MoC C could give rise to unwarranted RWA variability.

Submission date
Rejected publishing date
Rationale for rejection

This question has been rejected because the issue it raises is not material i.e. it does not raise a prudential, payments, consumer protection, resolution or other regulatory issue that is within the EBA’s remit.

The Single Rule Book Q&A tool has been established to provide explanations and non-binding interpretations on questions relating to the practical application or implementation of the provisions of legislative acts referred to in Article 1(2) of the EBA’s founding Regulation, as well as associated delegated and implementing acts, and guidelines and recommendations, adopted under these legislative acts.

For further information on the purpose of this tool and on how to submit questions, please see “Additional background and guidance for asking questions”.

Status
Rejected question