Response to consultation on Guidelines PD estimation, LGD estimation and treatment of defaulted assets

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Question 1: Do you agree with the proposed requirement with regard to the application of appropriate adjustments and margin of conservatism? Do you have any operational concern with respect to the proposed categorization?

See attached document.

Question 2: Do you see any operational limitations with respect to the monitoring requirement proposed in paragraph 53?

See attached document.

Question 3: Do you agree with the proposed policy for calculating observed average default rates? How do you treat short term contracts in this regard?

See attached document.

Question 4: Are the requirements on determining the relevant historical observation periods sufficiently clear? Which adjustments (downward or upward), and due to which reasons, are currently applied to the average of observed default rates in order to estimate the long-run average default rate? If possible, please order those adjustments by materiality in terms of RWA.

See attached document.

Question 5: How do you take economic conditions into account in the design of your rating systems, in particular in terms of: d. definition of risk drivers, e. definition of the number of grades f. definition of the long-run average of default rates?

See attached document.

Question 6: Do you have processes in place to monitor the rating philosophy over time? If yes, please describe them.

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Question 7: Do you have different rating philosophy approaches to different types of exposures? If yes, please describe them.

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Question 8: Would you expect that benchmarks for number of pools and grades and maximum PD levels (e.g. for exposures that are not sensitive to the economic cycle) could reduce unjustified variability?

See attached document.

Question 9: Do you agree with the proposed principles for the assessment of the representativeness of data?

See attached document.

Name of organisation

Italian Banking Association