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French banking federation

The question should be assessed in the light of the quantitative impact study that the EBA is currently conducting.
The requirement to calculate the one-year default rates at least quarterly will be difficult to implement as for LDPs considering the very low amount of defaults. This calculation is currently update annually.
Besides, we would like to stress 2 potential difficulties or interpretation issues:
- The first is related to article 37. The term “homogeneously” should be clarified in order to avoid misinterpretation.
- As regards Article 39, the “timely manner” should be interpreted in a manner consistent with the declaration of default of a counterparty.
Restructuring fees and penalties in interests should not be added to the EAD but considered only as recoveries, otherwise a loan where such payments would be done would get the same LGD as a loan where no restructuring fees would be received, nor any penalties in interests applied. Restructuring fees payment and penalties in interests should reduce the LGD.
We do not believe that any benchmarks for number of pools and grades and maximum PD levels will reduce the unwarranted variability of RWAs. On the other hand, the harmonised definition of the default as well as the improvements made through these guidelines will reduce the variability of the RWAs but without always prejudging the justification or not of these differences.
From our perspective the rating philosophy PIT/TTC should not be a validation criterion. On the wholesale perimeter, we generally use a so-called “hybrid” approach in the first instance, by applying a mix of PIT and TTC drivers.
The number of grades does not depend on the economic conditions as the models give directly a rating, or a continuous PD which is mapped on the group rating scale. The long-run average default rate is calculated on a historical period covering a mix of upturn and downturn years. The downturn periods are identified thanks to the annual observed default rates and macroeconomic indicators.
We agree with the proposed policy. No retreatment shall be performed over short term contracts.
This question relates to banks individual practices.
This question relates to banks individual practices.
We agree with the EBA proposal on the proposed categories and priorities, and acknowledge these provisions are also consistent with the guidance produced by the supervisor regarding their audit trail.
Notably we favour EBA's distinction between adjustments (which may be positive or negative) and the margin of conservatism - MoC (which may be zero or positive).Therefore, isolating and quantifying the margin of conservatism must enable institutions that meet all the preconditions to lift this margin of conservatism.
As regards the question of the responsibility of the institution versus that of the supervisor, this assessment must therefore remain with the bank. The supervisor comes at the end of the process for verifying the proper application of these conditions and the relevancy of measures (as MoC for instance) taken by the institution.
However the consultation raises questions of interpretation relative to the definition of a homogeneous segmentation". Given the many non-conclusive exchanges between institutions and the supervisor in this regard, it would be desirable for the EBA to at least define objective criteria on which all stakeholders could base themselves to assess the homogeneity of a segment or class of risk.
We note this precision should be provided by the regulator while preserving the human judgment as it is precisely provided for in paragraph 22 of these guidelines."
The analyses of representativeness of the data realized on relevant axes are systematically implemented during the modelling phase. These analyses make only sense if they are realized on default contracts (modelled versus recently observed) and not between the default contracts used during the modelling phase versus the current portfolio (the performing portfolio).
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