Question ID
2022_6567
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Model validation
Article
182
Paragraph
1
Subparagraph
a
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not applicable
Name of institution / submitter
De Nederlandsche Bank
Country of incorporation / residence
Netherlands
Type of submitter
Competent authority
Subject matter
Own-conversion factor estimation for fully-drawn facilities
Question

Are observed defaults of credit facilities that are fully-drawn at reference date in scope for estimation of own-conversion factors?

Background on the question

Article CRR 182 (1) (a) states that “all observed defaults within the data sources” are to be used in the estimation of own-conversion factors (hereafter CCFs).

However, in the case of observed defaults of credit facilities that were fully-drawn at reference date, the realised CCF as defined in CRR 4(1)(56) cannot be calculated. This is because the denominator of the realised CCF, namely the “currently undrawn amount of the commitment”, is zero. Similarly during model application, the entire exposure of a fully-drawn credit facility is on-balance, and there is no “committed but undrawn amount” on which a CCF could be applied as per CRR 166(8).

 

At the same time, leaving defaults of fully-drawn credit facilities outside the scope of CCF model estimation could result in 'missed' additional drawings. This is because these facilities can still exhibit additional drawings in the lead-up to the default event. This can happen for a variety of reasons, for example due to the accrual of interest arrears and fees, or due to a limit increase between reference and default date.

Submission date
Rejected publishing date
Rationale for rejection

This question has been rejected because the issue it raises is beyond the remit of the Q&A process and as such it cannot be addressed via a Q&A. 

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Status
Rejected question