A
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Recovery Rate ModelingHard

Ridgeway Bank estimates LGD for its commercial loan portfolio using three approaches: workout LGD of 42%, market LGD (based on post-default bond trading prices) of 48%, and implied market LGD (derived from credit spreads) of 38%. For Basel IRB regulatory capital purposes, which consideration is most critical when selecting the LGD estimate?

FRM Part II — Recovery Rate Modeling Practice Question | AcadiFi | AcadiFi