New QIS5 gives more PD and LDG leeway

LONDON – The final draft of the quantitative impact study five (QIS5) workbook and accompanying instructions, published on September 19, has only one substantive change compared with the first version that was published in July, according to an international regulatory source close to the process.

In response to requests from some QIS5 participants, the final workbook allows banks to define more probability of default (PD) and loss-given default (LGD) bands under the IRB approaches to credit risk, relative to the first version, which should allow for finer gradations of risk. Most of the remaining changes have been technical, the source said, primarily involving minor changes and addressing errors in the spreadsheet. There are no changes of substance to the operational risk aspects, with