1.3.2. PD/LGD approach

Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) (Text with EEA relevance) · European Union

The risk weighted exposure amounts shall be calculated according to the formulas in point 3. If credit institutions do not have sufficient information to use the definition of default set out in points 44 to 48 of Part 4, a scaling factor of 1,5 shall be assigned to the risk weights. At the individual exposure level the sum of the expected loss amount multiplied by 12,5 and the risk weighted exposure amount shall not exceed the exposure value multiplied by 12,5. Credit institutions may recognise unfunded credit protection obtained on an equity exposure in accordance with the methods set out in Articles 90 to 93. This shall be subject to an LGD of 90 % on the exposure to the provider of the hedge. For private equity exposures in sufficiently diversified portfolios an LGD of 65 % may be used. For these purposes M shall be 5 years.

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Source: EUR-Lex (Cellar) · retrieved 2026-10-09 · Text as adopted (Official Journal); later amendments are not incorporated in this text.