LGD Input Floors
From Open Risk Manual
Definition
LGD Input Floors are the proposed parameter floors to estimated Loss Given Default values in order to reduce undue RWA variability stemming from the use of internal models (Loss Given Default Models).
The December 2017 Basel agreement constrains the use of the IRB for credit risk along several dimensions and clarifies several already existing IRB standards, to reduce the variation of practices and resulting risk weights.
Specifically, introducing floor values for the estimates of loss given default (LGD input floors), whose values range from
- 25% to 50% for the unsecured part of the exposure and
- from 0% to 15% for the secured part of the exposure, depending on the exposure class.
