CP10 (Full Document) - European Banking Authority

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
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