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Ruth Doubleday
The 香蕉福利直播 has responded to the PRA's discussion paper on internal ratings-based (IRB) modelling for residential mortgages. We welcome the discussion and stand ready to support the PRA in this important work.
Commenting on the discussion paper, Ruth Doubleday, Head of Prudential Regulation said:
“香蕉福利直播 strongly welcomes this PRA initiative to consider ways to improve clarity and consistency in IRB mortgage modelling. This is an important project to remove unnecessary friction in the approval process for existing IRB firms as well as opening up the market for more IRB aspirant firms. Making more advanced modelling techniques more accessible to more smaller lenders, as well as improving the process for existing IRB lenders will enable firms to increase mortgage lending and home ownership, in line with the government’s growth strategy.
“One of the challenges for building societies is that it is rare to make losses on mortgage loans, which can make modelling more challenging simply because of the low-risk nature of these loans. We therefore welcome the introduction of a foundation IRB approach where societies can model the probability of default (PD) and use a PRA prescribed loss given default (LGD). We also consider that data pooling across firms could be a useful vehicle to explore.
“Overall, we view the discussion as a positive move by the PRA, but the devil will be in the detail. This is a complex area presenting various technical challenges, particularly to ensure that the overall calibration creates the right incentives for firms to move from standardised approach to FIRB and AIRB.”
Notes:
The Basel framework allows firms with permission for the advanced internal models-based (AIRB) approach to use their own models to calculate the probability of default (PD), loss given default (LGD) and exposure at default (EAD). The foundation IRB approach requires firms to model PD only and use a prescribed LGD and EAD.
Commenting on the discussion paper, Ruth Doubleday, Head of Prudential Regulation said:
“香蕉福利直播 strongly welcomes this PRA initiative to consider ways to improve clarity and consistency in IRB mortgage modelling. This is an important project to remove unnecessary friction in the approval process for existing IRB firms as well as opening up the market for more IRB aspirant firms. Making more advanced modelling techniques more accessible to more smaller lenders, as well as improving the process for existing IRB lenders will enable firms to increase mortgage lending and home ownership, in line with the government’s growth strategy.
“One of the challenges for building societies is that it is rare to make losses on mortgage loans, which can make modelling more challenging simply because of the low-risk nature of these loans. We therefore welcome the introduction of a foundation IRB approach where societies can model the probability of default (PD) and use a PRA prescribed loss given default (LGD). We also consider that data pooling across firms could be a useful vehicle to explore.
“Overall, we view the discussion as a positive move by the PRA, but the devil will be in the detail. This is a complex area presenting various technical challenges, particularly to ensure that the overall calibration creates the right incentives for firms to move from standardised approach to FIRB and AIRB.”
Notes:
The Basel framework allows firms with permission for the advanced internal models-based (AIRB) approach to use their own models to calculate the probability of default (PD), loss given default (LGD) and exposure at default (EAD). The foundation IRB approach requires firms to model PD only and use a prescribed LGD and EAD.