Probability of default (PD)Probability of default is the likelihood that a borrower defaults over a given horizon, usually one year. Capital models use a long-run average (through-the-cycle) PD per rating grade, while IFRS 9 uses point-in-time 12-month and lifetime PDs that react to the economic outlook.
Loss given default (LGD)Loss given default is the share of an exposure a lender expects to lose if the borrower defaults, after recoveries from collateral and workout, and net of costs. Capital models use a downturn LGD, while IFRS 9 models use a forward-looking LGD.
Exposure at default (EAD)Exposure at default is the amount a lender expects to be owed when a borrower defaults. For loans with undrawn limits, such as credit cards and revolving facilities, it adds the expected extra drawing through a credit conversion factor (CCF).
CRR3CRR3 is Regulation (EU) 2024/1623, the amendment to the Capital Requirements Regulation that implements the final Basel III reforms in the EU. It revises the standardised approach for credit risk, limits internal models, introduces the output floor and replaces the operational risk approaches, mostly applying from 1 January 2025.