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S&P launches loss estimation tool

Standard & Poor's Risk Solutions has launched LossStats Model – a tool for the estimation of loss-given default (LGD).

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Calculation of LGD enables banks to better understand their potential lossfor a particular exposure in the event of a default. "Loss-given defaultestimates are a key requirement of Basel II, said Roy Taub, global head ofStandard & Poor's Risk Solutions. “They are an essential component of asound credit risk management process," he added.

In addition to its use in bank internal ratings systems, the tool is aimedat securitisation specialists and investors. It can be used for exposuresencompassing a variety of collateral, industries and subordinations of debt.

The US version of the model is underpinned by a database of largecorporates, with loss data from more than 2,500 defaulted obligations datingback to 1987. Inputs to the model include collateral type, debt position,the aggregate default rate and the industry default rate.

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