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Commission Delegated Regulation (EU) 2022/439

Preamble
Recitals 38
Chapter 1 - GENERAL PROVISIONS ON THE ASSESSMENT METHODOLOGY (Article 1-5) 5
Chapter 2 - ASSESSMENT METHODOLOGY FOR SEQUENTIAL IMPLEMENTATION PLANS AND PERMANENT PARTIAL USE OF THE STANDARDISED APPROACH (Article 6-8) 3
Chapter 3 - ASSESSMENT METHODOLOGY FOR THE FUNCTION OF VALIDATION OF INTERNAL ESTIMATES AND OF THE INTERNAL GOVERNANCE AND OVERSIGHT OF AN INSTITUTION (Article 9-17) 9
Chapter 4 - ASSESSMENT METHODOLOGY FOR USE TEST AND EXPERIENCE TEST (Article 18-22) 5
Chapter 5 - ASSESSMENT METHODOLOGY FOR ASSIGNMENT OF EXPOSURES TO GRADES OR POOLS (Article 23-25) 3
Chapter 6 - ASSESSMENT METHODOLOGY FOR IDENTIFICATION OF DEFAULTS (Article 26-29) 4
Chapter 7 - ASSESSMENT METHODOLOGY FOR RATING SYSTEMS DESIGN, OPERATIONAL DETAILS AND DOCUMENTATION (Article 30-40) 11
Chapter 8 - ASSESSMENT METHODOLOGY FOR RISK QUANTIFICATION (Article 41-58) 18
- Section 1 - General (Article 41) 1
- Section 2 - Methodology for assessing overall requirements for quantification of risk parameters (Article 42-44) 3
- Section 3 - Methodology for assessing requirements specific for PD estimation (Article 45-46) 2
- Section 4 - Methodology for assessing requirements specific to own-LGD estimates (Article 47-52) 6
- Section 5 - Methodology for assessing requirements specific to own- conversion factor estimates (Article 53-56) 4
- Section 6 - Methodology for assessing the effect of guarantees and credit derivatives (Article 57) 1
- Section 7 - Methodology for assessing the requirements for purchased receivables (Article 58) 1
Chapter 9 - ASSESSMENT METHODOLOGY FOR ASSIGNMENT OF EXPOSURES TO EXPOSURE CLASSES (Article 59-62) 4
Chapter 10 - ASSESSMENT METHODOLOGY FOR STRESS TEST USED IN ASSESSMENT OF CAPITAL ADEQUACY (Article 63-66) 4
Chapter 11 - ASSESSMENT METHODOLOGY FOR THE CALCULATION OF OWN FUNDS REQUIREMENTS (Article 67-71) 5
Chapter 12 - ASSESSMENT METHODOLOGY FOR DATA MAINTENANCE (Article 72-75) 4
Chapter 13 - ASSESSMENT METHODOLOGY OF INTERNAL MODELS FOR EQUITY EXPOSURES (Article 76-82) 7
Chapter 14 - ASSESSMENT METHODOLOGY FOR MANAGEMENT OF CHANGES TO RATING SYSTEMS (Article 83-84) 2
Chapter 15 - FINAL PROVISION (Article 85) 1

Article 54 - Method of conversion factors estimation

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Article 54

Method of conversion factors estimation

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When assessing the method of estimating conversion factors as referred to in Article 182 of the Regulation (EU) No 575/2013, competent authorities shall verify that:

((a))

the institution assesses estimates of conversion factors by facility grade or pool;

((b))

the average realised conversion factors by facility grade or pool are calculated using the number of default weighted average;

((c))

all observed defaults within the data sources are used for conversion factors estimation;

((d))

the possibility of additional drawings is taken into account in a conservative manner, except for retail exposures when they are included in the LGD estimates;

((e))

the institution’s policies and strategies regarding account monitoring, including limit monitoring, and payment processing are reflected in the conversion factors estimation;

((f))

all of the following are adequate to the type of exposures to which they are applied:

((i))

the functional and structural form of the estimation method;

((ii))

assumptions on which the estimation method is based;

((iii))

where applicable the method of estimation of the downturn effect;

((iv))

the length of the historical observation period in accordance with Article 53;

((v))

the margin of conservatism applied in accordance with Article 44;

((vi))

the human judgement;

((vii))

where applicable, the choice of risk drivers.

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