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NEW DEFINITION OF DEFAULT

Smooth integration of the new rules and their transfer into internal procedures and it systems before the 1st January 2021
Designed to help you correctly understand and apply the rules prescribed by the EBA Guidelines on the application of the default definition
For the institutions that use the Internal Ratings based (IRB) approach, Finalyse assesses the impact on the parameters of credit risk and how it is going to influence the expected loss calculations and, by extension, risk weights. We help you adjust the historical data feed in your IRB model to comply with the new definition of default. For the institutions that use the standardised approach we assist with recalibrating the rating systems.

How does Finalyse address your challenges?

Recalibrating rating systems

Embeding the new definition into the IT systems

Global overview, predicting the impact via a comprehensive simulation

Support in preparation for the necessary approval of the new models by the competent authority

Option for simultaneous implementation together with other regulatory changes (IFRS 9)

Easing the workload on the reporting teams (large difference in the number of defaults before and after the introduction of the new definition)

Get all your questions answered

How does it work in practice?

Key Features

  1. Due to the significance and wide impact of the implementation of the new definition of default within banks’ internal procedures, documentation, governance, systems and database, the only way to prepare everything on time is to handle it in a project mode.
  2. Such complex project should involve the right skills, methodological, functional, technical as well as data-oriented profiles.

What Finalyse experts say

16 Feb, 2020
New definition of default: tips to simulate the future impact!

Every bank is highly interested in predicting the impact that the application of the new default definition would have on various aspects. That prediction can be achieved via a comprehensive simulation of the default under the new definition on the available historical data of the credit portfolio. Knowing the broad impact of the new definition on capital requirements, IFRS 9 models, precision is highly recommended for the sake of planning of own funds requirements.

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06 Aug, 2019
New Definition of Default: Insight on Challenges to Implementation

The NDoD is expected to increase the comparability of risk parameters and own funds requirements, particularly for those financial institutions already applying the IRB method. It will also impact the own funds requirements under both the IRB Approach and the Standardized Approach. Depending on the high gaps between the institutions’ current definition and the new one, the effect may be considerable. Given the magnitude of effort banks are expected to put into integrating the new rules of default identification and exit into their internal procedures and IT systems, the deadline of 1st January 2021 is challenging.

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