4.1 Draft cost-benefit analysis/impact assessment

The impact assessment (IA) analyses the potential related costs and benefits of the policy provided in the draft guidelines. This analysis shall provide the reader with an overview of the findings as regards the problem identification, the options identified to remove the problem and their potential impacts.

A. Problem identification

While the proposed RTS aim to harmonise the definition of an economic downturn, these guidelines focus on the estimation of downturn LGD per se. Indeed, both the definition of an economic downturn and the downturn LGD estimation have been identified in different reports (from the EBA [EBA publishes reports on comparability of Risk Weighted Assets (RWAs) and pro-cyclicality] as well as from the industry) as key drivers of non-risk-based variability of capital requirements. All issues that have been considered while developing the RTS and these guidelines relate to the identification and/or limitation of drivers of unjustified RWA variability in the context of downturn LGD.

The RTS and these GL are expected to provide a more harmonised framework for the identification of economic downturn conditions and downturn LGD estimations, leading to more comparable RWA outcomes across institutions.

B. Policy objectives

The objective of these guidelines is to establish convergence between institutions' methodological choices in estimating downturn LGD estimates. These methodological choices are considered to be drivers of unjustified RWA variability; hence the harmonisation of the current practices is expected to increase the comparability of own funds requirements.