FAQs on the LGD & EAD platform

Q: For what purposes can I use the data from the LGD & EAD platform?  

A: Participating member banks use our database both for modelling and benchmarking purposes. Although banks are required to use their own internal default history to build and calibrate LGD models, in case of low default portfolios additional data information can be necessary. As GCD is collecting a broad range of information for each defaulted borrowers, banks have the possibility to create their own reference data set, representative for their banks' portfolio. GCD also publishes peer comparison reports which give banks further insights into their models.

Some concrete use cases are: 

  • Identify risk-drivers on a more diverse dataset (e.g. Segmentation, LtV, Time-to-Recovery, …)   
  • Identify macro-economic dependencies of LGD and EaD
  • Prove the correct LGD levels for Low Default Portfolios (e.g. banks, shipping)
  • Correctly calibrate downturn or stressed LGDs from long time series
  • Reduce uncertainty add-ons for lack of data
  • Benchmark historical losses with your modelled forward-looking expected losses under IFRS 9 / CECL 
  • Peer benchmark the LGD estimates underlying your pricing models with loss rates from a global and diverse dataset

Q: The database may contain data on the same defaults collected from different member banks. How does GCD account for possible repetitions? How does GCD recommend their member banks to treat the data to eliminate the threat of possible repetitions?

A: Although Banks may have exposures to the same Borrower these should not be viewed as duplicates as each Bank will have different types of exposure with that Borrower and will give each Lender a different default experience.

Q: Does GCD only collect resolved defaults or also unresolved defaults?

A: GCD does collect both resolved and unresolved defaults. Banks who submitted both resolved and unresolved defaults, will receive back both resolved and unresolved defaults. Banks who only submit resolved loans, will only receive bank resolved loans.  

Q: How do you define a case as resolved vs unresolved? Could you share the definition of the same?

In general terms, we want to classify only those cases as resolved where the bank delivering data is satisfied that the final financial outcome of the default is known and it is therefore possible to calculate the final LGD without much likelihood of it being changed by subsequent data.  A Borrower is only to be regarded as resolved if all of the loans associated with it are resolved.   

 

.... more FAQs to be added in the near future ....