Article 452

Path:
Capital Requirements Regulation (CRR) > PART EIGHT > TITLE III > Article 452
Title:
Article 452
Description: 
Use of the IRB Approach to credit risk
Main content: 

Institutions calculating the risk-weighted exposure amounts under the IRB Approach shall disclose the following information:

(a) the competent authority's permission of the approach or approved transition;

(b) an explanation and review of:

(i) the structure of internal rating systems and relation between internal and external ratings;

(ii) the use of internal estimates other than for calculating risk-weighted exposure amounts in accordance with Part Three, Title II, Chapter 3;

(iii) the process for managing and recognising credit risk mitigation;

(iv) the control mechanisms for rating systems including a description of independence, accountability, and rating systems review;

(c) a description of the internal ratings process, provided separately for the following exposure classes:

(i) central governments and central banks;

(ii) institutions;

(iii) corporate, including SMEs, specialised lending and purchased corporate receivables;

(iv) retail, for each of the categories of exposures to which the different correlations in Article 154(1) to (4) correspond;

(v) equities;

(d) the exposure values for each of the exposure classes specified in Article 147. Exposures to central governments and central banks, institutions and corporates where institutions use own estimates of LGDs or conversion factors for the calculation of risk-weighted exposure amounts, shall be disclosed separately from exposures for which the institutions do not use such estimates;

(e) for each of the exposure classes central governments and central banks, institutions, corporates and equity, and across a sufficient number of obligor grades (including default) to allow for a meaningful differentiation of credit risk, institutions shall disclose:

(i) the total exposures, including for the exposure classes central governments and central banks, institutions and corporates, the sum of outstanding loans and exposure values for undrawn commitments; and for equities the outstanding amount;

(ii) the exposure-weighted average risk weight;

(iii) for the institutions using own estimates of conversion factors for the calculation of risk-weighted exposure amounts, the amount of undrawn commitments and exposure-weighted average exposure values for each exposure class;

(f) For the retail exposure class and for each of the categories set out in point (c)(iv), either the disclosures outlined in point (e) (if applicable, on a pooled basis), or an analysis of exposures (outstanding loans and exposure values for undrawn commitments) against a sufficient number of EL grades to allow for a meaningful differentiation of credit risk (if applicable, on a pooled basis);

(g) the actual specific credit risk adjustments in the preceding period for each exposure class (for retail, for each of the categories as set out in point (c)(iv)) and how they differ from past experience;

(h) a description of the factors that impacted on the loss experience in the preceding period (for example, has the institution experienced higher than average default rates, or higher than average LGDs and conversion factors);

(i) the institution's estimates against actual outcomes over a longer period. At a minimum, this shall include information on estimates of losses against actual losses in each exposure class (for retail, for each of the categories as set out in point (c)(iv) over a period sufficient to allow for a meaningful assessment of the performance of the internal rating processes for each exposure class (for retail for each of the categories as set out in point (c)(iv). Where appropriate, the institutions shall further decompose this to provide analysis of PD and, for the institutions using own estimates of LGDs and/or conversion factors, LGD and conversion factor outcomes against estimates provided in the quantitative risk assessment disclosures set out in this Article;

(j) for all exposure classes specified in Article 147 and for each category of exposure to which the different correlations in Article 154 (1) to (4) correspond:

(i) for the institutions using own LGD estimates for the calculation of risk-weighted exposure amounts, the exposure-weighted average LGD and PD in percentage for each relevant geographical location of credit exposures;

(ii) for the institutions that do not use own LGD estimates, the exposure-weighted average PD in percentage for each relevant geographical location of credit exposures.

For the purposes of point (c), the description shall include the types of exposure included in the exposure class, the definitions, methods and data for estimation and validation of PD and, if applicable, LGD and conversion factors, including assumptions employed in the derivation of these variables, and the descriptions of material deviations from the definition of default as set out in Article 178, including the broad segments affected by such deviations.

For the purposes of point (j), the relevant geographical location of credit exposures means exposures in the Member States in which the institution has been authorised and Member States or third countries in which institutions carry out activities through a branch or a subsidiary.