AIRB combined with Financial Collateral Comprehensive Method

In accordance with Article 108(1) of the CRR, institutions applying the Standardised Approach or the IRB Approach without using own estimates of LGD for an exposure may recognise any available funded credit protection (FCP) pursuant to Chapter 4 of Part Three Title II of that Regulation. By contrast, in accordance with Article 108(2) CRR, institutions applying the IRB Approach using own estimates of LGD for an exposure may take into account the effect of funded credit protection in accordance with Chapter 3 of Part Three Title II of the CRR. With Regulation (EU) 2024/1623, an exemption to this general treatment was introduced in Article 161(7) CRR. Under that exemption, an institution using own estimates of LGD for a given type of unsecured exposures to corporates, regional governments and local authorities or public sector entities, which is not able to take into account the effect of the FCP securing one of those exposures in the own estimate of LGD due to lack of data on recoveries for that FCP, is allowed to derive the LGD for such an exposure by combining the institution’s own estimate of LGD for unsecured exposures with the LGD for the secured part of the exposure determined for the respective type of FCP in accordance with Chapter 4 of Part Three Title II of the CRR. The reference to IRB-CCF in point (b) of Article 223(4) CRR, which was also introduced by Regulation (EU) 2024/1623, therefore exclusively refers to exposures, which are subject to that exemption, whereas the Financial Collateral Comprehensive Method remains inapplicable for other exposures for which an institution is using own estimates of LGD.