Question
How to define/identify 'highly leveraged obligors' under Article 180(1)(a)?
Background on the question
Highly leveraged obligors is not defined in Regulation (EU) No 575/2013 (CRR).
Answer
Regulation (EU) No. 575/2013 does not define "highly leveraged obligors", but requires institutions to ensure that the probability of default (PD) estimates for such obligors reflect the performance of their assets based on stressed volatilities. Accordingly, institutions are under an obligation to identify among their obligors those for whom the default risk is particularly sensitive to changes in the value of their assets because of a high leverage or because their assets are predominantly traded assets, and to ensure that PD estimates for such obligors are reflective of the performance of assets based on stressed periods.