The members of the EACB welcome the opportunity to comment on the EBA draft Guidelines on PD estimation, LGD estimation and the treatment of defaulted exposures.
We support the aim to reduce unjustified variability, and achieve greater comparability, of risk parameters stemming from internal models via a targeted approach that can retain the necessary flexibility and risk sensitivity while restoring trust in the models.
Harmonising and clarifying concepts and methods, rather than prescribing a fixed technique, is an appropriate solution to take into account different portfolios, different risk profiles, institutional experiences, and the economic specificities of the Member States.
In general, we believe that an overarching clarification should be made indicating that the proposals would only be taken in consideration by competent authorities after the implementation period. In particular, it should be avoided that, in upcoming tests and inspections, conclusions are taken based on the expectations of the draft GL.
All in all we see that the requirements for "segmentation principles", "data requirements" and "human judgment in model development" are appropriately principle-based and generally reflect the industry practice.
On the other hand, the requirements for the inclusion of a Margin of Conservatism (MoC), as defined in section 4.4, point towards a serious need for adjustment in systems, processes and methods. The expectations are very comprehensive, detailed and very concrete and do not seem to follow the overall principle based approach of the draft GL.
Timeline for implementation
Concerning the proposed deadline for implementation, while 2.5 years seems realistic as a timeframe, we believe that the actual date should be set only at a later stage of the process. In particular, following the feedback to the consultation and taking into account the results of the qualitative survey that was launched to assess the impact of the proposed requirements on the rating systems.
In addition, given the stated close interlinks with the yet to be published draft RTS on the nature, severity and duration of economic downturn to be developed under Art.
181(3)(a) CRR, it would not be appropriate to launch an implementation process that has to be adjusted after a short period.
It is worth underlining that the regulatory changes will have an impact not only on the institutions but also upon competent authorities that will have to review and approve revised models consistently.