Estimation of EAD in place of conversion factors

14.1 The PRA considers that a firm may provide own estimates of EAD in place of the own estimates of CFs that it is permitted or required to provide under CRR Article 151 .

14.2 In this supervisory statement references to EAD refer to both direct estimates of EAD and CFs unless specified otherwise.

(CRR Article 151)

General expectations for estimating EAD

14.3 The PRA expects that EAD estimates should not be less than current drawings (including interest accrued to date). Consequently, the PRA expects CF estimates not to be less than zero.

14.4 The EAD required for IRB purposes is the exposure(s) expected to be outstanding under a borrower’s current facilities should it go into default in the next year, assuming that economic downturn conditions occur in the next year and a firm’s policies and practices for controlling exposures remain unchanged other than changes that result from the economic downturn conditions.

14.5 In order to achieve sufficient coverage of the EAD, the PRA expects firms to take into account all facility types that may result in an exposure when an obligor defaults, including uncommitted facilities.

14.6 To the extent that a firm makes available multiple facilities, the PRA expects firms to be able to demonstrate: