14.1 The PRA considers that the historical observation period for calibrating long-run average LGD estimates should be as broad as possible and should contain data from various periods with differing economic circumstances. For this purpose, firms should at a minimum select a historical observation period in such a way that:

(a) the length of the historical observation period, ie the timespan between the oldest default considered in the RDS and the moment of the LGD estimation, covers at least the minimum length specified in Article 181(1)(j) of the Credit Risk: Internal Ratings Based Approach (CRR) Part for exposures to corporates and, for retail exposures, the period specified in the final sentence of Article 181(2) of the Credit Risk: Internal Ratings Based Approach (CRR) Part;

(b) it ensures that the RDS includes a sufficient number of closed recovery processes in order to provide robust LGD estimates;

(c) it is composed of consecutive periods and includes the most recent periods before the moment of LGD estimation;

(d) it includes the full period for which the firm is reasonably able to replicate the currently applicable definition of default;

(e) for exposures to corporates, all available internal data are considered ‘relevant’, as referred to in Article 181(1)(j) of the Credit Risk: Internal Ratings Based Approach (CRR) Part, and are included in the historical observation period; and

(f) for retail exposures, all internal data are included in the historical observation period.