2015_1933 QRRE loss rate | European Banking Authority

Question ID:

2015_1933

Legal Act:

Regulation (EU) No 575/2013 (CRR)

Topic:

Credit risk

Article:

154

Paragraph:

Subparagraph:

COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:

Not applicable

Article/Paragraph:

Disclose name of institution / entity:

Type of submitter:

Credit institution

Subject Matter:

QRRE loss rate

Question:

What is meant by loss rate in this context?

Background on the question:

LGD is a fixed and downturn value in the capital requirement calculation. Based on the logic of the capital model the analysis of the PD volatility seems more reasonable, but it is not loss rate. Realised default rate x LGD is also a possible interpretation.

Date of submission:

07/04/2015

Published as Final Q&A:

25/09/2015

Final Answer:

The loss rate for a set of exposures is the ratio of total losses for this set of exposures divided by total exposure values of this set of exposures, i.e. unlike for Loss Given Default (LGD), not limited to defaulted exposures only. In the absence of sufficient realised losses, consideration should be given to alternative data where appropriate conservatism can be demonstrated.

In the context of Article 154(4)(d) of Regulation (EU) No 575/2013 (CRR), a portfolio of exposures (set of exposures) for which loss rates are to be determined needs to be distinguished into several subsets of exposures by Probability of Default (PD) bands because having exhibited low volatility of loss rates, relative to their average level of loss rates, is required especially within the low PD bands.

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.