Article 54
Method of conversion factors estimation
When assessing the method of estimating conversion factors as referred to in Article 182 of the Regulation (EU) No 575/2013, competent authorities shall verify that:
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(a) |
the institution assesses estimates of conversion factors by facility grade or pool; |
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(b) |
the average realised conversion factors by facility grade or pool are calculated using the number of default weighted average; |
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(c) |
all observed defaults within the data sources are used for conversion factors estimation; |
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(d) |
the possibility of additional drawings is taken into account in a conservative manner, except for retail exposures when they are included in the LGD estimates; |
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(e) |
the institution’s policies and strategies regarding account monitoring, including limit monitoring, and payment processing are reflected in the conversion factors estimation; |
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(f) |
all of the following are adequate to the type of exposures to which they are applied:
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