Use of LGD estimates appropriate for economic downturn
Article 50
When assessing whether the requirement to use LGD estimates that are appropriate for an economic downturn as laid down in point (b) of Article 181(1) of Regulation (EU) No 575/2013 is fulfilled, competent authorities shall verify that: (a) the institution uses LGD estimates that are appropriate for an economic downturn, where those are more conservative than the long-run average; (b) the institution provides both long-run averages and LGD estimates appropriate for an economic downturn for justification of its choices; (c) the institution applies a rigorous and well documented process for identifying an economic downturn and assessing its effects on recovery rates and for producing LGD estimates appropriate for an economic downturn; (d) the institution incorporates in the LGD estimates any adverse dependencies that have been identified between on the one hand selected economic indicators and on the other hand the recovery rates.