The European Banking Authority (EBA) has published two consultation papers under the Capital Requirements Regulation (CRR), as amended by the revised Capital Requirements Regulation (CRR III).
The first consultation paper proposes amendments to the guidelines on the application of the definition of default under Article 178 of the CRR.
Key proposals include:
- Maintaining the 1% threshold for the net present value loss in debt restructuring, emphasising the framework's flexibility and alignment with accounting principles.
- Considering a shortened probation period for certain forborne exposures from one year to three months—however this is not incorporated in the draft amended guidelines.
- Increasing the exceptional treatment of days past due at invoice level from 30 to 90 days for non-recourse factoring arrangements to better reflect the economic reality of purchased receivables.
- Making other technical updates to align with the CRR III framework.
The second consultation paper sets out draft guidelines on the methodology institutions shall apply for their own estimation and application of credit conversion factors (CCF) under Article 182(5) of the CRR, to ensure alignment and consistency with existing guidelines on the Probability of Default (PD) and Loss Given Default (LGD) estimation. The EBA did not include CCF estimation in its original internal ratings based (IRB) repair programme due to updates in the Basel III framework restricting the scope of application of CCF models to revolving commitments. These updates have now been included as part of CRR III. The EBA considers the guidelines a natural continuation of the IRB repair programme now that the CRR requirements relating to CCF estimation have stabilised. By leveraging existing guidance, the EBA aims to ensure alignment and coherence across key risk parameters in the IRB approach and therefore promote a harmonised and reliable modelling landscape.
The deadline for responses to both consultations is 15 October, with a public hearing scheduled for 3 September.
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