For calculating the average PD on column 010, on a given exposure, should we consider the PD originally assigned to it or should we consider the PD after the regulatory floor is applied? (floor value being for most cases 0,03%)
Example: on an exposure, a PD of 0,01% has been assigned by the bank. Under Basel rule, PD will become 0,03% for Expected Loss and Capital requirement calculations. Which PD should be considered when computing average PD on column 10: original PD (0,01%) or regulatory PD(0,03%)
In column 010 of the CR IRB (C 08.01, C 08.02) template, the PD assigned after applying the regulatory floor (e.g. 0.03 %) shall be reported. This applies to the PD assigned to each obligor grade or pool and, where an aggregation shall be provided (e.g. total exposures), to the exposure weighted average of the PDs. This approach aims at reflecting the value used in the calculation of the risk-weighted assets.