6.3.1 Calculation of economic loss and realised LGD

6.3.1.1 Definition of economic loss and realised LGD

131. For the purpose of LGD estimation as referred to in Article 181(1)(a) of Regulation (EU) No 575/2013, institutions should calculate realised LGDs for each exposure, as referred to in point (55) of Article 4(1) of that Regulation, as a ratio of the economic loss to the outstanding amount of the credit obligation at the moment of default, including any amount of principal, interest or fee.

132. For the purpose of paragraph 131, institutions should calculate the economic loss realised on an instrument (i.e. defaulted facility), as referred to in point (2) of Article 5 of Regulation (EU) No 575/2013 as a difference between:

(a) the outstanding amount of the credit obligation at the moment of default, without prejudice to paragraph 140, including any amount of principal, interest or fee, increased by material direct and indirect costs associated with collecting on that instrument discounted to the moment of default; and