Question ID:
2013_144
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Credit risk
Article:
153
Paragraph:
1
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Article/Paragraph:
N/A
Disclose name of institution / entity:
No
Type of submitter:
Consultancy firm
Subject Matter:
IRB Approach
Question:

Regarding the IRB approach for the calculation of capital requirements for preventing credit risk, where should the weighting formula be applied? Is it contract by contract, or is it a weighted average of the probability of default (PD) and loss given default (LGD) for each pool and then apply the risk weight formula to this mean?

Background on the question:

The weighting formula is the formula that allows institutions to calculate the risk weight of a pool. RW (PD,LGD,M).

Date of submission:
09/08/2013
Published as Final Q&A:
29/11/2013
Final Answer:

As set out under Article 151(3) of Regulation (EU) No.575/2013 (CRR), the calculation of risk-weighted exposure amounts for credit risk and dilution risk shall be based on the relevant parameters associated with the exposure in question. Only where the relevant parameters, namely (1) probability of default (PD); (2) loss given default (LGD); and (3) maturity, associated with the exposures in question are identical for each exposure category in question may the credit institution aggregate a number of individual exposures in order to calculate the risk-weighted exposure amount for that group of exposures.

Status:
Final Q&A
Answer prepared by:
Answer prepared by the EBA.
Note to Q&A:

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

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