1.   An institution’s internal methodology, or a part of it, used for estimating losses given default in accordance with Article 325bp(6), point (d), of Regulation (EU) No 575/2013 shall fulfil the same requirements as those that apply to the methodologies used by institutions that have been permitted to estimate losses given default in accordance with Part Three, Title II, Chapter 3 of that Regulation.

2.   By way of derogation from paragraph 1, an institution’s internal methodology, or a part of it, for estimating losses given default shall fulfil the requirements set out in paragraphs 3 or 4, as applicable, where, in relation to a given position, all of the following conditions are met on a quarterly basis:

(a)	no external sources fulfilling the requirements set out in Article 4 are already available for estimating losses given default for that position;

(b)

the use of an internal methodology, or a part of it, fulfilling the requirements set out in paragraph 1 is either: (i) not feasible due to a lack of input data for that position; or (ii) disproportionate in relation to the materiality or the holding period of that position, based on the trading strategy adopted for that position;

(c)

the value of ‘m’, calculated in accordance with the formula laid down in paragraph 5, is any of the following: (i) lower than or equal to 10 %; (ii) higher than 10 %, and the institution investigates whether additional external sources fulfilling the requirements set out in Article 4 are available and uses those sources to reduce the value of ‘m’ to a value which is lower than or equal to 10 %.

3.   Where the conditions set out in paragraph 2 are met, an institution’s internal methodology, or a part of it, shall assign to a position an estimate of loss given default which is equal to or higher than the following:

(a)	75 % for subordinated debt positions;

(b)	45 % for senior unsecured debt positions;

(c)	11,25 % for covered bond positions;

(d)	25 % for any other positions.

4.   By way of derogation from paragraph 3, where the conditions set out in paragraph 2 are met and the own funds requirements for default risk decrease as the value of loss given default assigned to a given position increases, an institution’s internal methodology, or a part of it, shall assign to that position an estimate of loss given default which is equal to or lower than the values set out in paragraph 3.

5.   For the purposes of paragraph 2, point (c), institutions shall calculate the value of ‘m’ in accordance with the formula set out in Article 1(5), where the term DRC (other methodologies and external sources) represents the own funds requirements calculated in accordance with Article 325bn(1) of Regulation (EU) No 575/2013 relating exclusively to the trading book positions referred to in Article 325bl of that Regulation for which the conditions set out in paragraph 2 are not met.