Do these methods apply for other non-retail purchased receivables (i.e. institutions and sovereigns) ? For example, can an institution PD’s be calibrated using these top down approach based on EL calibration ?
According to article 160-2, "For purchased corporate receivables in respect of which an institution is not able to estimate PDs or an institution's PD estimates do not meet the requirements set out in Section 6, the PDs for these exposures shall be determined in accordance with the following methods: (a) for senior claims on purchased corporate receivables PD shall be the institutions estimate of EL divided by LGD for these receivables; (b) for subordinated claims on purchased corporate receivables PD shall be the institution's estimate of EL; (c) an institution that has received the permission of the competent authority to use own LGD estimates for corporate exposures pursuant to Article 143 and that can decompose its EL estimates for purchased corporate receivables into PDs and LGDs in a manner that the competent authority considers to be reliable, may use the PD estimate that results from this decomposition."
The "purchased corporate receivables" referred to in Article 160(2) of the Regulation (EU) No 575/2013 (CRR) are exclusively the purchased receivables in the exposure class of "exposures to corporates" of Article 147(2)(c) CRR.
The specific treatments for "purchased receivables" set out in Article 160(2) and Article 163(3) CRR were designed exclusively for the two exposure classes referred to as "exposure to corporates" and "retail exposures" in Article 147(2)(c) and (d) CRR respectively. This is in particular highlighted by the limitation of capital requirements for dilution risk to "purchased corporate and retail receivables" set out in Article 157(1) CRR. Therefore the specific treatment for "purchased receivables" cannot be applied to any other exposure classes.
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.