CP10 (Full Document) - European Banking Authority

investigating the potential drivers of the Conversion Factor
parameter:
· The institution’s strategies and policies with respect to account
monitoring (Annex VII, Part 4, Paragraph 89);
· The institution’s ability and willingness to prevent further
drawings short of payment default (Paragraph 89);
· Factors influencing the borrower’s demand for funding/facilities;
· Factors influencing the institution’s willingness to supply
funding/facilities;
· The attitude of third parties (such as other financial institutions,
trade creditors, and owners) whose presence as alternative
sources of supply may increase or reduce the demand for
funding/facilities for an individual institution; and
· The nature of the particular facility and the features built into it
(such as covenant protection).
269. This list should not be considered exhaustive, nor does the list
prescribe how each specific driver should be used in the estimation
approach. Institutions are encouraged to develop approaches which
take account of a broader and more tailored set of drivers.
3.3.4. Quality of internal documentation
270. Annex VII, Part 4, Paragraphs 31 to 40 set minimum requirements
regarding documentation and data maintenance.
271. Supervisors should assess the institution‘s development, validation,
and operation of rating systems used. As part of this process a
competent authority may itself replicate all or part of the institution‘s
validation, or to have a third party do so. The institution must
document all its development and validation steps in such a way that
a third party would be able to fully understand the reasoning and
procedures underlying the development and validation. This also
holds true for the documentation of the institution’s operations.
272. At a minimum, the documentation of the development and validation
of the institution’s rating system should include detailed descriptions
of the development methodologies, the assignment and classification
processes, calibration, and the internal procedures, processes, and
tests used by the institution to validate the rating system.
273. An institution must ensure that its rating systems are valid on an
ongoing basis. Since rating systems and their operations are subject
to constant improvements, validation must be an iterative process.
After material changes in the rating system or processes, institutions
must ensure that their documentation is up to date. The
documentation of development and validation must record the
iterations and the processes used to validate them.
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