CP10 (Full Document) - European Banking Authority

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process to verify the conclusions reached by the independent reviewer. 307. Institutions’ rating assignment systems should include a welljustified policy on their tolerance for gaps in the data for an obligor and on conservative approaches to treating missing data, for example by substituting values They should seek to minimise the amount of missing data over time. 308. The following types of documentation are essential: · Data policy and statement of responsibility: Institutions should establish an explicit data policy. They are responsible for ensuring the quality of their data and should be able to convince supervisors that they are meeting fitforpurpose standards. · Data directory: Institutions should have clear data directories (dictionaries) that provide definitions of data items. · Database descriptions: <strong>Document</strong>ation for databases should allow institutions to provide supervisors with the information needed to determine the soundness of the databases. For example: Page 70 of 123 A general description of the databases (for example, information on the relational database model, including tables, keys, triggers, stored procedures; performance data such as overall maximal size; security information such as owner, users with readandwrite access, and maintenance responsibilities). The source of the data. The processes used to obtain and load the data. The filters used to create and debug the database (e.g., maximum and minimum values and treatment of missing values). Controls on access, consistency, etc. A specific description of the variables included. 309. Institutions should prepare a global map of all the data and IT systems weaknesses found during the internal review process (for example, lack of automation) with an assessment of their impact on the final calculation. Institutions should also state how they plan to correct the weaknesses. 3.4.3. Representativeness of data used for model development and validation 310. The CRD’s requirements for data samples used in the development of rating systems are different from those for samples used in estimating risk parameters (PD, LGD, and CF). The text refers variously to ‘representativeness,’ ‘strong link,’ and ‘comparability,’ depending on the purpose for which the data are used (assigning
exposures to obligors or facilities, grades or pools, risk parameter estimation) and on the data sources (external, internal, pooled data). In certain cases the CRD requires ‘broad equivalence’ between the definitions of default and loss used in the data sets and the supervisory definition given in Annex VII, Part 4, Paragraphs 44 and 45. Data requirements 311. In fulfilling the requirements on data quality any uncertainties – if these are admissible at all – should be accompanied by some degree of higher conservatism in the estimates or in the assignment processes. However, institutions should not treat the application of conservatism as a substitute for fully meeting the requirements. Where conservatism is applied, it should be based on the institution’s internal practices. Data requirements for the observation period (Annex VII, Part 4, Paragraphs 66, 71, 85, 94 and the possible relaxation mentioned in Article 154) should be satisfied fully, without the option of compensating shorter observation periods with applied conservatism. Data sets used for risk parameter estimation (comparability) 312. Institutions have to demonstrate the comparability of data sets used for estimation (Annex VII, Part 4, Paragraph 52) to the institution’s current portfolio. This applies equally to internal, external, and pooled data and to the combination of such data sources. The interpretation of ‘comparability’ should include at least the following points: · Comparability should be based on analyses of the population of exposures represented in the data used for estimation, the lending standards used when the data was generated, and other relevant characteristics, in comparison to the corresponding properties of the institution’s current portfolio. Other relevant characteristics could include, for example, the distribution of the obligors across industries, the size distribution of the exposures, and similarity in the geographic distribution of the exposures. · In analysing the comparability of populations, all key characteristics (quantitative and qualitative obligor and facility characteristics) that could relate to default (for PD estimation) or loss (for LGD estimation) should be taken into account. The analysis should be based on these characteristics or on a mapping from one set of characteristics to the other. For example, the analysis could consider the distribution of the population according to the key characteristics and the level and range of these key characteristics. In all cases, and especially for external and crossborder samples, any differences in the meaning of the key characteristics should be documented and considered in the modelbuilding or risk quantification. It is expected that the distribution of the population and the level and range of these key Page 71 of 123
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CEBS CP 10 11 July 2005 Guidelines
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ANNEXES ...........................
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to use these approaches. 6. The gui
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IRB approach can be given only if t
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approaches for regulatory purposes
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purposes, when the group has submit
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efficient running of the process, u
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and/or 105 of the CRD, subject to t
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58. Institutions intending to move
Page 19 and 20: translated, supervisors will organi
Page 21 and 22: 76. The issues that supervisors are
Page 23 and 24: holding company, the competent auth
Page 25 and 26: · A new approval process shall not
Page 27 and 28: · Institutions may not be ready to
Page 29 and 30: 2. Asking institutions to notify su
Page 31 and 32: 116. ‘Immaterial’ should refer
Page 33 and 34: 128. The EU Council has proposed th
Page 35 and 36: should start with inputs, and those
Page 37 and 38: to be only broadly compliant with t
Page 39 and 40: institutions to be able to identify
Page 41 and 42: differentiated if their loss rates
Page 43 and 44: payments are originating from the s
Page 45 and 46: any of its subsidiaries in full, wi
Page 47 and 48: 197. As a general rule, the rating
Page 49 and 50: · Their discounting method results
Page 51 and 52: grades. In this case, all of the re
Page 53 and 54: of challenges, including choosing t
Page 55 and 56: 228. In principle, supervisors do n
Page 57 and 58: prices on defaulted exposures, and
Page 59 and 60: LGD estimation, they have to be tak
Page 61 and 62: The exposure value for the followin
Page 63 and 64: investigating the potential drivers
Page 65 and 66: advisable in some circumstances not
Page 67 and 68: terms) the proof of consistency wit
Page 69: 302. The information used in credit
Page 73 and 74: Pooled data sets for good predictiv
Page 75 and 76: inputs to the IRB approach. Supervi
Page 77 and 78: used to quantify the risk parameter
Page 79 and 80: years for the economy as a whole, a
Page 81 and 82: · Institutions must be able to bri
Page 83 and 84: Benchmarking the outputs of interna
Page 85 and 86: model, and the internal use of the
Page 87 and 88: systems” (Annex VII, Part 4, Para
Page 89 and 90: · Examining reports from Internal
Page 91 and 92: organisational point of view (e.g.,
Page 93 and 94: conclusions are wellfounded. Inte
Page 95 and 96: 401. The role played by the CRC fun
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Page 99 and 100: way of a formal notification). The
Page 101 and 102: · The rollout plan should have a
Page 103 and 104: Principles and examples 1. The purp
Page 105 and 106: etween systems, recording of data t
Page 107 and 108: · The definition of an appropriate
Page 109 and 110: incorporate forwardlooking elemen
Page 111 and 112: · Approving proactive risk managem
Page 113 and 114: frequency and format of the interna
Page 115 and 116: · Development of internal processe
Page 117 and 118: · Understanding the extent and nat
Page 119 and 120: ‣ If not, inform the other superv
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the decision. ‣ Agree on the proc
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