On 28 September 2016 the European Banking Authority (EBA) published its final Guidelines on the application of the definition of default across the EU.

The definition of default, introduced by the Capital Requirements Directive 2006/48/EC (CRD), later replaced by Regulation (EU) No 575/2013 (CRR), has not been implemented across institutions and jurisdictions according to a consistent approach.

In effect, institutions have established their own detailed rules for the identification of default based on their experience and portfolio characteristics, resulting in a substantial variation in these practices across institution. Therefore, an effort for the harmonisation has become necessary.

The Guidelines provide detailed clarification on specific aspects of the definition of default such as the days past due criterion for default identification, indications of unlikeliness to pay, conditions for a return to non-defaulted status, treatment of the definition of default in external data, application of the default definition in a banking group and specific aspects related to retail exposures.

The Guidelines will apply from 1 January 2021, but the EBA encourages institutions to implement the changes prior to this date in order to build the necessary time series.

The Guidelines can be found here:  Final report  |  Press release

Contacts:

Vito Vittore
Senior Partner

Luigi Bonifacio
Associate