On June 22, the IIF submitted a response letter to the EBA's Second Draft RTS on Economic Downturn, as well as the EBA's Guidelines for the estimation of LGD appropriate for an economic downturn ("˜Downturn LGD estimation'), submitted to the European Banking Authority.We share the EBA's view as presented in the Guidelines that "the strength of internal models lies in the ability of institutions to model on institution specific data, which ensures a high degree of risk sensitivity and constitutes an important characteristic of capital requirements to be maintained." As such, we encourage the EBA to continue liaising with its international regulatory peers, and to escalate this RTS for consideration at Basel fora, in particular given the scope of the Basel III agreement. It is paramount in our view to align the EBA timelines with the implementation deadline of the Basel III final agreement (i.e. 2022 plus transition period).Regarding the RTS, our main concern with the with the workability and implementation of this RTS is the level of complexity of retrieving all the information of the list of indicators required by Article 2. Secondly, we are concerned that data availability issues related to the requirement to look at a time series of 20 years for economic factors could increase the unjustified variability. Lastly, we support the EBA's position of not creating specific guidelines for Downturn CF estimates.'
Regarding the Guidelines, the following themes were identified in our response: