The rule in plain words
Sum for backtesting of PD ranges from 0.75 to 2.5
In each of "Number of obligors at the end of the previous year" (column 0020) and "Of which: defaulted during the year" (column 0030) of Credit risk and free deliveries: IRB approach to capital requirements: back-testing of PD (CR IRB 5) (OF08.05.00.01): "0.75 to <2.5" (row 0070) must equal the sum of "0.75 to <1.75" (row 0080) and "1.75 to <2.5" (row 0090).
What to do if your return fails it
- 01Open the table below and find the cells the rule reads.
- 02Add up the parts in your return and compare the result with the total.
- 03If they differ, a part is missing, a value sits in the wrong cell, or the total is out of date.
- 04The Bank of England allows a small rounding difference, worked out from the decimals each value is reported with.
- 05It runs only when your filing indicators mark OF08.05.00 as reported.
- 06This is a blocking check. A return that fails it is normally rejected, so fix it before you submit.
The cells it reads
Credit risk and free deliveries: IRB approach to capital requirements: back-testing of PD (CR IRB 5) (OF08.05.00.01)
Rows
- R00700.75 to <2.5
- R00800.75 to <1.75
- R00901.75 to <2.5
Columns
- C0020Number of obligors at the end of the previous year
- C0030Of which: defaulted during the year
Sheets
- S0001Total (AIRB approach)
- S0002Total (FIRB approach and slotting approach)
- S0006Institutions (FIRB approach)
- S0009Corporates - Specialised Lending (AIRB approach)
- S0010Corporates - Specialised Lending (FIRB approach or slotting approach)
- S0011Corporates - Other general corporates - non-SME (AIRB approach)
- S0012Corporates - Other general corporates - non-SME (FIRB approach)
- S0015Retail - Qualifying revolving (AIRB approach)
- S0016Retail - Other SME (AIRB approach)
- S0017Retail - Other non-SME (AIRB approach)
- S0018Retail - Secured by commercial immovable property SME (AIRB approach)
- S0019Retail - Secured by commercial immovable property non-SME (AIRB approach)
- S0020Retail - Secured by residential immovable property - SME (AIRB approach)
- S0021Retail - Secured by residential immovable property non-SME (AIRB approach)
- S0022Corporates - Financial corporates and large corporates (FIRB approach)
- S0023Corporates - Other general corporates - SME (AIRB approach)
- S0024Corporates - Other general corporates - SME (FIRB approach)
Which returns it applies to
Line4 Check runs it on the own funds (PRA001) return on Bank of England banking taxonomy 4.1.1. The Bank of England applies it to own funds (PRA001) returns, as a blocking check.
The Bank’s own words and formula
The first paragraph of the plain words above is the Bank of England’s own, word for word, from its list of validations. The second spells out its formula, with each cell named from its templates.
Show the formulaShowHide
The Bank of England's formula. Cells are written as {t: table, r: row, c: column}.
{t: OF08.05.00.01, r: 0070} = sum({t: OF08.05.00.01, r: 0080; 0090})Where it applies, in the Bank's words (its scope):
scope({t: OF08.05.00.01, c:0020;0030,z:0001;0002;0006;0009;0010;0011;0012;0015;0016;0017;0018;0019;0020;0021;0022;0023;0024, f: banking, fv: banking_reporting})Other rules on Credit risk and free deliveries: IRB approach to capital requirements: back-testing of PD (CR IRB 5) (OF08.05.00.01)
- Sum for backtesting of PD ranges from 0.00 to 0.15 (boe_b0773)Blocking
- Sum for backtesting of PD ranges from 2.5 to 10 (boe_b0775)Blocking
- Sum for backtesting of PD ranges from 10 to 100 (boe_b0776)Blocking
- Observed average default rate (%) should not exceed 100% (boe_b0447)
- Number of obligors defaulted during the year should not exceed Number of obligors at the end of the year (boe_b0354_1)
Every PRA banking rule on OF08.05.00.01
Checks like this one, run at the point of submission, are the first step to real-time supervision. Line4 builds SupTech software for financial regulators that runs checks like these as each return arrives.