Notes on financial stability and supervision n. 42 – Danger rate, the issue of rating as a risk differentiation driver

On November 28, 2024, the Bank of Italy issued an update regarding Notes on financial stability and supervision n. 42 - Danger rate, the issue of rating as a risk differentiation driver. Some banks have introduced variables representing debtor creditworthiness into their LGD quantification methodology, including rating (i.e., PD) as a risk driver, which is a significant novelty in estimating the LGD parameter. This has led to a decrease in total RWA by around 9%.