CP10 (Full Document) - European Banking Authority

terms) the proof of consistency with the CRD’s definition of default
(Annex VII, Part 4, Paragraph 44) can be omitted.
290. If the institution also uses the model for PD estimation of rating
classes (i.e., the PDs from model A are used as inputs in PD
estimations for the entire model), the institution also has to prove
that the default definition used in Part A is the same as the one used
for Part B, and that both are consistent with the definition in the
CRD. If this is not the case, the institution has to prove that it is able
to map the default definition of Part A into Part B, and both
definitions to the definition used in the CRD.
291. Furthermore, the institution has to be aware of how different
information is processed in Part A. For validation purposes, the
institution has to treat the combined outcome of the two parts of the
model like the outcome of a single internally developed model. The
institution should also compare the predictive power of the combined
model with the predictive powers of the individual parts. In this way,
the institution could determine if one of the two parts is no longer
predictive, or if the combination of the two parts is the cause for a
decline in predictive power.
3.4. Data
292. The CRD requires data to be held and stored for several different
purposes. The various databases and data sets could be
differentiated according to the purposes they are meant to support:
· Those used to build models for the purpose of allocating
exposures to obligors or facilities grades or pools (Article 84(a)
and Annex VII, Part 4, Paragraphs 5, 14, 17, 31(b), and 37­40).
· Those used to derive and maintain risk estimates (PD, LGD, and
CF estimates)(Annex VII, Part 4, Paragraphs 37­40, 57, 66, 69,
71, 81, 85, 92, and 94. See also transitional period: Articles 152­
155).
· Those used for storing outcome and performance data (Annex
VII, Part 4, Paragraph 40(b)) .
· Those used to assign current obligors and exposures to grades or
pools and to calculate current minimum capital, i.e., the current
portfolio (Annex VII, Part 4, Paragraphs 5, 14, 17, 23, 26 and 28­
30).
293. Institutions’ physical databases need not be built to address each of
these purposes separately, but may contain data relating to a mix of
purposes.
294. There may also be different sources of data:
· For creating the model for assignments: Internal data, external
and pooled data might be used to determine the weight of the
input variables.
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