Response to cP on Guidelines on Credit Risk Mitigation for institutions applying the IRB approach with own estimates of LGDs
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Only eligible CRM is used in application for the calculation of regulatory requirements
Question 1: Do you agree with the proposed clarifications on eligibility requirements in accordance with Article 181(1)(f) of the CRR?
NoQuestion 2: Do you agree with the proposed clarifications on the assessment of legal certainty of movable physical collateral? How do you currently perform the assessment of legal effectiveness and enforceability for movable physical collateral?
NoQuestion 2: Do you agree with the proposed clarifications on the assessment of legal certainty of movable physical collateral? How do you currently perform the assessment of legal effectiveness and enforceability for movable physical collateral?
NoQuestion 4: Do you have specific concerns related to the recognition of collateral in the modelling of LGD? How do you currently recognise collateral in your LGD estimates?
NoQuestion 5: What approaches for the recognition of the unfunded credit protection do you currently use? What challenges would there be in applying approaches listed above for the recognition of unfunded credit protection?
We use the modelling approach (art.29a); for the part of exposure secured by UFCP of a no-IRB guarantor we use the risk weight applicable under the Standardised Approach as of art.29b if convenientQuestion 6: Do you have any specific concerns related to the issues excluded from the scope of the Guidelines?
Yes. The main concern refers to point 1 shown in the explanatory box. The art. 29b (STD on AIRB) approach must be an option to be choosed in case of convenience and not an obligation. Penalizing the presence of a guarantee could lead to management anomalies of non-activations of guarantees valid forQuestion 7: Do you agree with the proposed clarification regarding the parallel treatment of ineligible UFCP and ineligible FCP? How do you currently monitor the cash flows related to ineligible unfunded credit protection and how do you treat such cash flows with regard to the PD and LGD estimates?
No. In order to define the guarantee driver in the estimation of the LGDS model, all the registered guarantees are used without verification of elegibility (the information is not present in the historical series). This approach is conservative: to include in a guaranteed cluster something for which the CRM may not affect recoveries (like ineligible collateral) it put in that cluster positions with higher LGDS because actually unsecured; this approach not affect the unsecured cluster with locations that might instead have a typical recovery process of the guaranteed records. The decision on the two approaches (the above one that is a priori conservative without expensive refinements or the art.31 based on only elegible credit protection but with the effort of monitoring activities and any adjustments) must be a choice of the institute according to its internal evidence.Only eligible CRM is used in application for the calculation of regulatory requirements