Update

14 October 2020: The PRA published presentation slides from the virtual ‘internal ratings based (IRB) mortgage roundtable’, which was hosted on Monday 5 October 2020, following the publication of PS11/20 ‘Credit risk: Probability of Default and Loss Given Default estimation’.

1 Overview

1.1 This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 21/19 ‘Credit risk: Probability of Default and Loss Given Default estimation’. [September 2019.] CP21/19 consulted on proposals to implement the European Banking Authority’s (EBA’s) regulatory products that relate to Probability of Default (PD) estimation and Loss Given Default (LGD) estimation. It also contains the PRA’s final policy in an updated Supervisory Statement (SS) 11/13 ‘Internal Ratings Based (IRB) approaches’ (see Appendix).

1.2 This PS is relevant to UK banks, building societies and PRA-designated UK investment firms.

Background

1.3 The EBA has developed a set of regulatory products (EBA roadmap) with the aim of reducing unwarranted variability across banks in internal ratings based (IRB) risk-weighted assets (RWAs) for credit risk.

1.4 The PRA consulted on its implementation of the EBA roadmap in two phases: