EBA · 2013_144 Final Q&A

IRB Approach

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
153, para. 1
Topic
Credit risk
Submitted by
Consultancy firm
Submitted
2013-08-09
Answered
2013-11-29
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

Regarding the IRB approach for the calculation of capital requirements for preventing credit risk, where should the weighting formula be applied? Is it contract by contract, or is it a weighted average of the probability of default (PD) and loss given default (LGD) for each pool and then apply the risk weight formula to this mean?

Background

The weighting formula is the formula that allows institutions to calculate the risk weight of a pool. RW (PD,LGD,M).

Answer

As set out under Article 151(3) of Regulation (EU) No.575/2013 (CRR), the calculation of risk-weighted exposure amounts for credit risk and dilution risk shall be based on the relevant parameters associated with the exposure in question. Only where the relevant parameters, namely (1) probability of default (PD); (2) loss given default (LGD); and (3) maturity, associated with the exposures in question are identical for each exposure category in question may the credit institution aggregate a number of individual exposures in order to calculate the risk-weighted exposure amount for that group of exposures.

Original source: European Banking Authority, Q&A ID 2013_144

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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