A methodological approach to developing and validating IFRS 9 -LGD parameters

Achim Luminita-Georgiana (), Mitoi Elena () and Turlea Ioan-Codrut ()
Additional contact information
Achim Luminita-Georgiana: Bucharest University of Economic Studies, Bucharest, Romania
Mitoi Elena: Bucharest University of Economic Studies, Bucharest, Romania
Turlea Ioan-Codrut: Bucharest University of Economic Studies, Bucharest, Romania

Proceedings of the International Conference on Business Excellence, 2021, vol. 15, issue 1, 683-694

Abstract: Since the introduction of the advanced internal rating based approach through the Basel framework, financial institutions and regulators have been dealing with the increased complexity of Loss Given Default models. The development and validation of the parameters has become more formalized and standardized as more prescriptive regulations and guidelines have been published by the European Parliament, European Central Bank and European Banking Authority. Furthermore, following the introduction of IFRS 9 in January 2018 even more emphasis is put on the development and validation as the standard poses new challenges to the way models are designed, developed, validated and increased complexity through the introduction of the lifetime and forward-looking adjustments. This paper address the challenges faced by banks and regulators when assessing and validation the IFRS 9 - Loss Given Default parameters and framework. Moreover, it describes a non-exhaustive list of tests that can be performed to establishing the accuracy, discrimination power and stability of the Loss Given Default outputs. It is important that the framework built around the modeling, development and validation process allows models to be easily integrated in the management framework in a flexible manner that can facilitate any changes that must be brought to the models. Hence, this paper outlines a non-exhaustive list of quantitative validation tests considered would satisfy the requirements of the IFRS 9 standard.

Keywords: IFRS 9; LGD; challenges; model; validation tests (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.2478/picbe-2021-0064 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:vrs:poicbe:v:15:y:2021:i:1:p:683-694:n:6

DOI: 10.2478/picbe-2021-0064

Access Statistics for this article

Proceedings of the International Conference on Business Excellence is currently edited by Alina Mihaela Dima

More articles in Proceedings of the International Conference on Business Excellence from Sciendo
Bibliographic data for series maintained by Peter Golla ().