Regulatory Alerts2020-12-08
Identification of Defaults
The Norwegian Financial Supervisory Authority issued Circular 4/2020 to clarify the criteria for identifying defaulted exposures under capital adequacy regulations. The document specifies that default triggers include payment delays exceeding 90 days, low probability of payment, and specific events like debt forgiveness or collateral realization, while mandating default contagion across exposures to the same counterparty. It further outlines procedures for removing default status after a quarantine period and requires consistent estimation of risk parameters such as probability of default and loss given default.
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