Guidelines on the application of the definition of default

Status: Under development

These Guidelines harmonise the definition of default across the EU prudential framework and improve consistency in the way EU banks apply regulatory requirements to their capital positions. A detailed clarification of the definition of default and its application is provided in these Guidelines, which cover key aspects, such as the days past due criterion for default identification, indications of unlikeliness to pay, conditions for the return to non-defaulted status, treatment of the definition of default in external data, application of the default definition in a banking group and specific aspects related with retail exposures.

  • Consultation Paper
Consultation on Guidelines on the application of the definition of default (EBA/CP/2015/15)

Summary
22/09/2015

The European Banking Authority (EBA) launched today a consultation on its draft Guidelines specifying the application of the definition of default. The work is in line with an EBA Discussion Paper on the topic published earlier in the year which described the EBA's upcoming work on improving consistency and comparability in capital requirements. The consultation runs until 22 January 2016 and the EBA is also asking the public for feedback on a Quantitative Impact Assessment (QIS) of the Guidelines.
 
The EBA Guidelines launched for public consultation today harmonise the definition of default across the EU prudential framework, which will in turn improve consistency in the way EU banks apply regulatory requirements to their capital positions. A detailed clarification of the definition of default and its application is provided in these Guidelines, which cover key aspects, such as the days past due criterion for default identification, indications of unlikeliness to pay, conditions for the return to non-defaulted status, treatment of the definition of default in external data, application of the default definition in a banking group and specific aspects related with retail exposures.
 
The tools provided in the Guidelines will allow for increased comparability of own funds requirements, as well as for a reduction in the variability of the risk estimates under the Internal Ratings-Based (IRB) approach. As indicated in its Discussion Paper on the IRB approach, which was published earlier this year and received broad support from the EU banking industry, the EBA believes that a regulatory review of the IRB models will strengthen the confidence in the IRB approach in the EU banking sector.
Additionally, the EBA is looking to obtain feedback from institutions on the impact of these requirements, and is making its Quantitative Impact Assessment (QIS) also available for comments.

Consultation process

Comments on the Guidelines can be submitted by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 22 January 2016. All contributions received will be published following the end of the consultation period, unless requested otherwise.
 
Institutions are also welcome to share their views and comments on the templates and instructions of the Qualitative Impact Assessment (QIS). They can send their comments to EBA-DoD@eba.europa.eu by 19 October 2015.
 
A public hearing will take place at the EBA premises on 13 November 2015 from 13:00 to 15:00.

Legal basis and background

These Guidelines have been developed according to Article 178 of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR), which specifies the definition of default of an obligor that is used for the purpose of IRB Approach according to Chapter 3 of Title II in Part Three of the CRR as well as for the Standardised Approach in line with Article 127 of the CRR.