LGD Floors

December 2009

Paragraph 266 of Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version (June 2006) sets a floor of 10% for Loss Given Default (LGD) estimates for retail exposures secured by residential properties. It further provides that the Basel Committee will review the potential need for continuation of this floor during the transition period which, according to paragraphs 46 - 48 of Basel II, will end on 31 December 2009.

In light of the recent volatility of some mortgage portfolios during the financial crisis, the Committee agreed at its December 2009 meeting to maintain the 10% LGD floor for claims secured by residential mortgages. This is in addition to the agreement reached by the Committee to keep in place other Basel II capital floors beyond 2009 as noted in its 13 July 2009 press release.