Related provisions for BIPRU 4.7.31
1 - 8 of 8 items.
A firm must regularly compare realised default rates with estimated PDs for each grade and where realised default rates are outside the expected range for that grade a firm must specifically analyse the reasons for the deviation. A firmusing its own estimates of LGDs and/or conversion factors must also perform analogous analysis for own estimates of LGDs and conversion factors. Such comparisons must make use of historical data that cover as long a period as possible. A firm must
A firm's own estimates of the risk parameters PD, LGD, conversion factor and EL must incorporate all relevant data, information and methods. The estimates must be derived using both historical experience and empirical evidence, and must not be based purely on judgemental considerations. The estimates must be plausible and intuitive and must be based on the material drivers of the respective risk parameters. The less data a firm has, the more conservative it must be in its estimation.[Note:BCD
If a firm can demonstrate to the FSA that for data that has been collected prior to 31 December 2006, appropriate adjustments have been made to achieve broad equivalence with the definitions of default or loss, the FSA may in the IRB permission allow the firm some flexibility in the application of the required standards for data.[Note:BCD Annex VII Part 4 point 56]
In addition to complying with the material in BIPRU 4.3.54 R (Data maintenance) a firm must collect and store:(1) complete rating histories on obligors and recognised guarantors;(2) the dates the ratings were assigned;(3) the key data and methodology used to derive the rating;(4) the person responsible for the rating assignment;(5) the identity of obligors and exposures that defaulted;(6) the date and circumstances of such defaults;(7) data on the PDs and realised default rates
In addition to complying with BIPRU 4.3.54 R (Data maintenance) a firm must collect and store:(1) data used in the process of allocating exposures to grades or pools;(2) data on the estimated PDs, LGDs and conversion factors associated with grades or pools of exposures;(3) the identity of obligors and exposures that defaulted;(4) for defaultedexposures, data on the grades or pools to which the exposure was assigned over the year prior to default and the realised outcomes on LGD
Irrespective of whether a firm is using external, internal, pooled data sources or a combination of the three, for its estimation of loss characteristics, the length of the underlying historical observation period used must be at least five years for at least one source. If the available observation spans a longer period for any source, and these data are relevant, this longer period must be used. However:(1) a firm need not give equal importance to historic data if this is compatible
Estimates of conversion factors must be based on data over a minimum of five years. Notwithstanding BIPRU 4.3.125 R:(1) a firm need not give equal importance to historic data if this is permitted by its IRB permission; and(2) (in the case of a firm with an IRB permission that permits this treatment of historic data) the firm must be able to convince the FSA if asked that more recent data is a better predictor of loss rates.[Note:BCD Annex VII Part 4 point 95 (part)]