EBA · 2015_2023 Final Q&A

Application of the top-down approach based on EL calibration (article 160 al.2) - purchased receivables

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
160, para. (2)
Topic
Credit risk
Submitted by
Accounting firm
Submitted
2015-05-28
Answered
2015-11-27
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

Do these methods apply for other non-retail purchased receivables (i.e. institutions and sovereigns) ? For example, can an institution PD’s be calibrated using these top down approach based on EL calibration ?

Background

According to article 160-2, "For purchased corporate receivables in respect of which an institution is not able to estimate PDs or an institution's PD estimates do not meet the requirements set out in Section 6, the PDs for these exposures shall be determined in accordance with the following methods: (a) for senior claims on purchased corporate receivables PD shall be the institutions estimate of EL divided by LGD for these receivables; (b) for subordinated claims on purchased corporate receivables PD shall be the institution's estimate of EL; (c) an institution that has received the permission of the competent authority to use own LGD estimates for corporate exposures pursuant to Article 143 and that can decompose its EL estimates for purchased corporate receivables into PDs and LGDs in a manner that the competent authority considers to be reliable, may use the PD estimate that results from this decomposition."

Answer

The "purchased corporate receivables" referred to in Article 160(2) of the Regulation (EU) No 575/2013 (CRR) are exclusively the purchased receivables in the exposure class of "exposures to corporates" of Article 147(2)(c) CRR. The specific treatments for "purchased receivables" set out in Article 160(2) and Article 163(3) CRR were designed exclusively for the two exposure classes referred to as "exposure to corporates" and "retail exposures" in Article 147(2)(c) and (d) CRR respectively. This is in particular highlighted by the limitation of capital requirements for dilution risk to "purchased corporate and retail receivables" set out in Article 157(1) CRR. Therefore the specific treatment for "purchased receivables" cannot be applied to any other exposure classes.

Original source: European Banking Authority, Q&A ID 2015_2023

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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