Institutions must estimate IRB conversion factors (IRB‑CCF) by facility grade or pool using average realised CCFs from observed defaults (negative realised CCFs treated as zero), on a 12‑month fixed horizon. Estimates must be conservative for economic downturns where appropriate, reflect additional drawings up to and after default, and allow increased conservatism where default frequency correlates with conversion magnitude. Estimates must be linked to obligor and facility characteristics as of 12 months before default, and consider account monitoring, payment processing and the institution’s ability to prevent further drawings; outstanding balances must be monitorable daily. Any differing internal and regulatory CCFs must be documented.

Reference data must be drawn from appropriately homogenous segments and must not comingle materially different risk characteristics; use of SME data for large corporates, small‑limit data for large limits, delinquent‑obligor data for non‑delinquent obligors, or unadjusted data affected by product‑mix changes requires detailed justification. Prohibited practices include setting floors or caps except the zero realised CCF, inadequate obligor‑level coverage, partial adjustment or exclusion of affected observations, and capping reference data at principal; accrued interest and excess drawings must be included. Minimum data periods: corporates/financials/sovereigns five years (increasing to seven); retail five years (two‑year transitional permission possible). EBA to draft RTS on downturn definition and two‑year permission by 31‑Dec‑2014 and to issue guidelines on IRB‑CCF methodology by 31‑Dec‑2026.