EUROPEAN COMMISSION

Brussels, XXX […](2012) XXX draft

COMMISSION DELEGATED REGULATION (EU) No …/.. of XXX

[…]

Supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 with regard to regulatory technical standards on the specification of the nature, severity and duration of an economic downturn in accordance with Articles 181(3)(a) and 182(4)(a) of Regulation (EU) No 575/2013

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 [OJ L 176, 27.06.2013, p. 1.], and in particular the third subparagraph of Article 181(3) in relation to point (a) and the third subparagraph of Article 182(4) in relation to point (a) thereof,

Whereas:

(1) The formulae for risk weights in Articles 153 and 154 of Regulation (EU) No 575/2013 are designed to reflect losses in 99.9% of the realisations of a systemic variability factor. In order to reach a 99.9% quantile of the loss distribution for the case where LGD is a random variable sensitive to economic conditions, the LGDs used as inputs in the regulatory risk weight formulae are required to be own-LGDs estimates that are appropriate for an economic downturn if those are more conservative than the long-run average own-LGD estimate, as stated in Article 181(1)(b) of Regulation (EU) No 575/2013. The specification of an economic downturn, for use in own-LGD or own-conversion factor ("CF") estimates, should be based on economic factors, including both macroeconomic and credit-related factors.