Question ID:
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Model validation
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Disclose name of institution / entity:
Type of submitter:
Credit institution
Subject Matter:
Interpretation of the appropriate estimator for Credit Conversion Factors (CCF)

Is it possible to interpret the concept of “default weighted average from all observed defaults” as described for realised CCFs in article 182 of Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 as “the arithmetic average of the yearly averages”?

Background on the question:

Under article 182 1 (a) of Regulation (EU) 529/2014 ‘institutions shall estimate conversion factors by facility grade or pool on the basis of the average realised conversion factors by facility grade or pool using the default weighted average resulting from all observed defaults within the data sources’. This is understood as a simple average of the realised CCF associated to each default. In other words, each default will count as ‘one’ in the average, irrespective of the time period in which the default occurred.

However, the “average realised CCF” could be computed as the arithmetic average of the yearly averages of realised CCFs in a given period. In such a way individual defaults belonging to years where there are more defaults will have a lower influence in the average, as each year will count the same.

Date of submission:
Published as Rejected Q&A
Rationale for rejection:

This question has been rejected because the objective of the Q&A tool is not to answer questions that would require a modification of the legal framework in order to address the question.

The Single Rule Book Q&A tool has been established to provide explanations and non-binding interpretations on questions relating to the practical application or implementation of the provisions of legislative acts referred to in Article 1(2) of the EBA’s founding Regulation, as well as associated delegated and implementing acts, and guidelines and recommendations, adopted under these legislative acts.

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Rejected question