Credit risk: internal ratings based approaches

Supervisory Statement 1/13
Published on 02 August 2013


On 2 August 2013, the Prudential Regulation Authority (PRA) issued a feedback statement on its consultation paper CP4/13 on the consolidation of legacy Financial Services Authority (FSA) material relating to internal ratings based (IRB) approaches into a Supervisory Statement. The consultation began on 28 March 2013 and closed on 29 April 2013. 

PDFSupervisory Statement 1/13
This Supervisory Statement has been superseded by SS11/13 published on 19 December 2013.

Summary of the key issues covered by the feedback statement

The feedback statement confirms the approach the PRA will take to consolidating FSA non-Handbook material communicated to firms on IRB approaches in respect of the following topics:

  • Definition of Default
  • Probability of Default (PD)
  • Loss Given Default (LGD)
  • Exposure at Default (EAD)
  • Income-Producing Real Estate Portfolios
  • Unrated Exposures
  • Notification and Approval of Changes to Approved Models

We have revised the feedback statement to address respondents’ comments on: the identification of exposures; the reduction of conversion factors in anticipation of syndication; the application of the point-in-time stress tests applied by firms using variable scalar approaches; and the need for greater clarity in certain areas. The feedback statement also clarifies the application of the LGD framework to social housing portfolios.

Other prudential regulation releases

Give your feedback

Was this page useful?
Add your details...