On 1 March 2021, the European Commission published a draft Delegated Regulation supplementing the Capital Requirements Regulation with regard to regulatory technical standards (RTS) specifying the nature, severity and duration of an economic downturn referred to in Article 181(1), point (b) and Article 182(1), point (b), of that Regulation.
The draft RTS specify the nature, severity and duration of an economic downturn to be taken into account in downturn loss given default and downturn conversation factors estimation, where these parameters are estimated under the Internal Ratings Based Approach. The draft RTS set out a notion of economic downturn, which may encompass one or several disjunctive downturn periods. The nature of an economic downturn is specified by a set of economic factors relevant for the underlying businesses, sectors and jurisdictions. The severity is specified in relation to these economic factors by the worst value observed in the past 20 years on each economic factor. The duration is specified in relation to the downturn periods, which are identified as periods in time where one or several economic factors show their most severe values. Some exemptions are possible for the specification of the severity and duration where the macroeconomic conditions are better captured by these.
The Council of the EU and the European Parliament will now scrutinise the draft Delegated Regulation. It will enter into force 20 days after its publication in the Official Journal of the European Union and apply from 1 January 2021.