QIS-4 Questionnaire

The purpose of this questionnaire is to support the interpretation of
QIS-4 survey results by providing an overview of how the data reflected
in QIS-4 responses were developed. Emphasis is placed on the data
sources and computations used to develop estimates, on key decisions
regarding the slotting of particular types of exposure or business
lines, and on identifying key assumptions or approximations that
materially influence the results. Ultimately, the aim of the
questionnaire is to ensure a more complete understanding of the degree
of precision in the reported information in the QIS-4.

Respondents should provide any information they believe is needed by
supervisors to better understand, evaluate and analyze data submissions.
Respondents should also respond clearly and concisely to the questions
below. Please refer to draft supervisory guidance for additional context
underlying these questions.[^1]

Responses that are candid and informative will best support
interpretation of the numbers. It is recognized that data and systems
relevant to AIRB are still in development at many institutions, and
supervisors understand that institutions will be assembling estimates on
a best efforts basis to approximate quantitative information that would
be available using a more complete AIRB or AMA infrastructure. In that
regard, throughout this questionnaire, institutions should note where
simplifying assumptions or approximations were necessary given current
system constraints

Respondents are encouraged to attach any documentation (such as internal
policies or analyses) that might support interpretation of the QIS-4
results; such documents may help reduce the need for follow-up
discussions.

## General

The questions in this section apply to both wholesale and retail
worksheets.

1.  Describe material instances in which exposure amounts included in
    each worksheet were approximated based on available information
    because systems were not adequate for generating exposure data in
    the specific form requested.

2.  For each portfolio type, describe material instances where the IRB
    inputs (PD, LGD, BEEL, M, or EAD) had to be estimated on a
    best-efforts basis and these estimates are subject to greater than
    usual uncertainty. (Such instances may arise when data or systems
    limitations require that the institution develop best-efforts
    workarounds in order to provide more complete portfolio coverage in
    QIS-4.)

3.  Identify material credit portfolios or obligor types, if any, where
    implied third-party support (support that is inferred but not backed
    by enforceable written agreements) is a material factor in assigning
    obligor or facility ratings/estimates. For each such portfolio or
    obligor type identified, indicate:

    a.  The types of implied support considered (e.g., support
        agreements, keep well letters, verbal assurances, etc.), and

    b.  Whether the inclusion of such support had a material impact on
        the assigned ratings i.e., produced more favorable ratings.

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    a.  
    b.  
    c.  
    d.  

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a.  

b.  

c.  For each of the wholesale and retail worksheets, describe the
    process for PD quantification, with particular emphasis on the
    following:

    a.  Describe the characteristics of the data used for estimation --
        defined in the draft corporate and retail guidance as "reference
        data" -- particularly with regard to scope and coverage (e.g.,
        time periods, geographic scope, industry coverage, etc.).
        Describe the internal and external reference data sources used.
        For corporate portfolios, describe what adjustments, if any,
        were made to the reference data for sub-portfolios such as
        middle market, asset-based lending, non-retail small business,
        etc.

    b.  If reference data sources cover multiple time periods, how were
        data or results from the different time periods been combined?

    c.  If multiple data sources were used, how were the results
        combined?

    d.  How, if at all, does the definition of default in the historical
        reference data set differ from the IRB definition outlined in
        the QIS-4 instructions?

    e.  Describe how you calculated the PD estimate from the reference
        data set, including significant judgmental adjustments.

    f.  To what extent do the resulting PD estimates reflect a "long-run
        average" in the sense used in the draft corporate and retail
        guidance?

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4.  How did your definition of default for wholesale and retail
    exposures in the existing portfolio differ, if at all, from the
    definitions given in the QIS-4 instructions?

5.  

6.  a.  
    b.  

7.  For each of the wholesale and retail worksheets, describe the
    process for LGD estimation, with particular emphasis on the
    following:

    a.  Consider the same factors noted in (a) through (c) of question 6
        above.

    b.  Provide a general description of the process that produced
        estimates of LGD from the underlying reference data. In
        particular, describe how seniority, collateral, facility type,
        third party enhancements, or other factors were incorporated
        into the LGD estimation process.

    c.  To what extent do the data incorporate opportunity costs or
        discounting to measure economic loss? To what degree are
        material direct and indirect workout costs reflected in the
        estimates?

    d.  Describe any adjustments, including significant judgmental
        adjustments, made to the LGD estimates to account for factors
        that are not reflected in the reference data set, but which
        affect the estimate of the economic downturn LGD.

    e.  The QIS instructions state that institutions may use "averages
        of loss severities observed during periods of high credit
        losses, forecasts based on appropriately conservative
        assumptions, or other similar methods" to estimate downturn
        LGDs. For each portfolio describe the period of high credit
        losses or forecast assumptions used to estimate downturn LGDs.

    f.  For each portfolio describe with as much specificity as possible
        the relationship between your estimates of economic downturn
        LGDs and corresponding long-run default-weighted average LGDs.

    g.  Describe any portfolios where LGD is not expected to vary with
        the economic cycle.

8.  For each of the wholesale and retail worksheets, describe the
    process for applying LGD estimates to exposures (e.g., loss severity
    grades, LGD models, etc.).

    a.  Briefly describe the criteria employed by the severity grades or
        model to estimate LGD

    b.  To what extent were simplifying assumptions made regarding LGD
        estimates due to IT system limitations regarding facility
        characteristics such as collateral values, etc.?

9.  Describe the process used to develop best estimates of material
    economic loss (BEEL) for exposures to obligors in default
    (corporate) or defaulted exposures (retail).

10. Describe the process used to develop estimates of potential LGD
    (PLGD) for exposures to obligors in default (corporate) or defaulted
    exposures (retail).

11. Provide a general description of the method used to estimate EADs
    and CCFs, with particular emphasis on the following:

    a.  Consider the same factors noted in (a) through (d) of question 6
        above.

    b.  Provide a general description of the process that produced
        estimates of CCF from the underlying reference data including
        significant judgmental adjustments.

    c.  Describe the nature of any adjustments made to the EAD estimates
        to reflect factors that are not reflected in the reference data
        set, but which reflect the impact of economic downturns on
        additional usage of undrawn lines.

The following questions apply to the wholesale worksheets

12. For each wholesale worksheet, to what extent do the rows of the
    spreadsheet (the distinct PD levels) correspond to internal obligor
    risk ratings used by the institution?  If the rows do correspond to
    internal risk ratings, address the following:

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d.  Were some grades combined into a single row for QIS-4 reporting
    purposes?

e.  If the internal risk rating systems differ for some of the exposures
    included in the worksheet, how was a correspondence established
    between different systems to allow the exposures to be reported in a
    unified way?

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13. If the PD rows discussed in the previous question do not correspond
    to internal obligor grades, how were the exposures in a particular
    row determined to have the PD indicated for that row?

14. For each of the wholesale worksheets, to what extent do the column
    headings (the distinct LGD levels) correspond to internal
    loss-severity risk ratings used by the institution?  If the columns
    do correspond to internal risk ratings, address the following:

    a.  Were some grades combined into a single column for QIS-4
        reporting purposes?

    b.  If the severity rating systems differ for some of the exposures
        included in the worksheets, how was a correspondence established
        between different systems to allow the exposures to be reported
        in a unified way?

15. If the LGD columns discussed in the previous question do not
    correspond to internal loss severity grades, how were the exposures
    in a particular column determined to have the LGD indicated for that
    column?

16. For the wholesale worksheets, describe the process used to complete
    the effective maturity matrix (the block of cells from AT30 to
    BH49).

17. For the wholesale worksheets, what proportion of total corporate
    exposure is hedged by (a) single-name credit default swaps, (b)
    basket credit derivatives (excluding synthetic securitizations), (c)
    total rate of return swaps, (d) other credit derivative
    instruments, (e) guarantees, (f) letters of credit, and (g) other
    credit risk mitigants? Is any portion of these credit risk mitigants
    not reflected in your QIS-4 results?

18. Describe how undrawn advised lines were quantified.

**Sovereign-Bank-Corporate**

19. Is translation risk taken into account by directly adjusting the
    obligor PD or through a facility LGD adjustment?

20. In estimating PFE for repo-style transactions, which of the three
    methods (a VaR model, own-estimate haircuts, or supervisory
    haircuts) did you use?

21. Provide the total dollar volume by portfolio of project, object, and
    commodity finance included in the "**Sov-Bank-Corp**" worksheet.

## SME Corporate

22. Describe how SME credits were identified and slotted into the six
    reporting categories.

23. 

## HVCRE and IPRE

24. Explain how PD and LGD estimates for ADC lending were derived.

25. Indicate if ADC loans are rated using the corporate loan rating
    system and then assigned PDs that correspond to the corporate
    rating.

26. Do the PD and LGD estimates for ADC lending include the mini-perm
    phase, or are they limited to the construction phase?

**General Retail Questions**

In addition to these questions that relate directly to retail, please be
sure to answer the relevant questions in the **General** section that
also pertain to retail exposures. For the following questions, please
provide a separate set of answers for each significant retail worksheet
category.

escribe the segmentation system and risk drivers used to assign loans to
different segments (homogeneous pools) for purposes of estimating PDs,
LGDs, and EADs. Discuss the process used to aggregate the segment level
PD, LGD, and EAD estimates into the worksheets. Discuss how the
institution chose the cut-off values for PD/LGD bands and the PD/EAD
bands. D

Discuss how seasoning and prepayments were incorporated into PD
estimation.

27. How were future unpaid accrued interest and fees included in the EAD
    estimates for HELOCs and QREs?

###### **Residential** **Mortgages**

28. What dollar amount of the bank's total residential mortgage
    portfolio has PMI coverage? For loans with PMI coverage, how much
    did the average LGD decrease (in percentage points -- not the
    percent decrease) compared to what the average LGD would have been
    absent PMI coverage?

###### **Retail Business Exposures**

29. Describe any difficulty in distinguishing sub-portfolios that should
    be treated as a retail exposure from the treatment of larger
    business loans that involve more individual treatment and judgmental
    underwriting?

###### **Other Retail Exposures**

30. Identify the significant product types at your institution --
    including retail leases, if they are segmented separately --
    reported in the "**Other Retail**" worksheet. What percentage does
    each represent of the total exposures reported in this worksheet?
    For each of these significant portfolios, list the average PD,
    average LGD, and total EAD. (For leases, EAD is equal to the
    discounted remaining lease payment stream.)

## Dilution Risk

31. Does your institution conduct material activities other than
    factoring that incur dilution risk, and to what degree were such
    dilution risks reflected in your QIS-4 results?

## Securitization

32. Please describe any material assumptions made to complete the
    "**Securitization**" worksheet.

33. For liquidity facilities to ABCP programs on an aggregate basis,
    what is the proportion of the total notional amount and the amount
    that can be drawn as of the report date?

34. Did you have any non-rated exposures for which an inferred rating
    was used? If so, for what types of structures were inferred ratings
    used?

35. Did you have exposures for which you had sufficient information to
    use either the SFA *or* the IAA? If so, which approach did you
    choose to use?

36. How often did the K~IRB~ cap apply? If applicable, please describe
    the methodology used to exclude exposures from risk weighting or
    deduction. Were there particular asset types or securitization
    vehicles for which the maximum capital requirement was applicable
    more often?

37. Did you choose to deduct the entire CEIO from Tier 1 rather than
    deduct gain-on-sale from Tier 1 and the remaining portion of the
    CEIO equally from Tier 1 and Tier 2?

38. What were the types of exposures (e.g., synthetic securitizations,
    liquidity facilities) for which you used the SFA? What was the
    predominant exposure type for which you used the SFA?

39. What proportion of the exposures where you used the SFA involved
    ABCP programs?

40. For roughly what proportion of SFA exposures did you use the
    simplified methods for computing N or LGD?

41. For any non-rated securitization exposures acquired as an investor,
    were you able to apply the SFA, and if so, what process was
    implemented to obtain the required inputs, especially K~IRB~ and the
    pool\'s exposure-weighted average LGD?

42. What types of exposures constituted the largest proportion reported
    in the non-IRB treatment section?

43. Were there any transactions or exposures for which you could not
    apply any of the IRB securitization approaches? If so, what types of
    exposures were involved and what were the reasons that none of the
    approaches were applicable?

44. Outside of credit card securitizations, did you have any other
    structures that were subject to the early amortization capital
    charges? What types of structures were affected and what are the
    triggers? Do you have securitizations for which an early
    amortization trigger is exclusively based on a performance factor
    other than excess spread?

45. For securitization exposures subject to the early amortization
    charge, did the K~IRB~ cap apply?

## Equity

46. Did you apply the definition of equity exposures contained in the
    QIS-4 instructions to all of the institution's equity holdings? If
    not, please detail the types of holdings for which the definitions
    were not applied and the reasons for diverging from the
    instructions. Please identify the characteristics of instruments
    that you found difficult to characterize clearly as either a debt or
    equity holding.

47. Under the internal models approach, how were potential losses on
    equity exposures calculated? How were offsetting values for equity
    exposures calculated? How were hedges with maturity mismatches
    recognized in calculating offsetting values?

## Operational Risk

48. What analytical framework was used to quantify operational risk
    exposure?

49. What was the unit of measurement in the assessment of operational
    risk exposures (e.g., major business lines, second level business
    lines, across all loss types, etc.)?

50. Describe how the following elements were individually incorporated
    into this framework:

    a.  *Internal data*. How were internal data incorporated into the
        model? Are there components of the model that rely solely on
        internal data? If so, how did you assess data sufficiency?

    b.  *External data*. Were external data a direct input to your
        model? If so, describe the process for determining when external
        data were included. If external data were not used as a direct
        data input, how were they used (e.g. scenario analysis, fit
        severity distributions, and/or understanding industry
        experience, etc.)?

    c.  *Scenario analysis*. Describe how scenario analysis was used in
        the analytical framework. Were scenarios a direct input into
        your model? If so, describe the process used to determine when
        scenarios were included.

    d.  *Business environment and internal control factor assessments*
        (and any other qualitative adjustment factors). Were business
        environment and internal control factor assessments included in
        your model? What parameters did you incorporate into your model
        to adjust the operational risk exposure number to reflect these
        qualitative assessments?

51. What weighting scheme or methodology was used to incorporate each of
    the four components listed above? Did the weighting vary by business
    line and/or event type, or for different units of measurement?

52. What specific statistical distributions (e.g., frequency and
    severity) were used to fit loss data? Did these vary by data type
    (i.e. internal, external, scenario), business line, or event type?
    If so, how?

53. Were adjustments made to internal or external data to account for
    changes in the scale or scope of the business, or factors such as
    inflation?

54. Describe any correlation and diversification benefit assumptions
    used as part of the operational risk exposure calculation.
    Specifically, what model parameters were used as they relate to
    these assumptions (e.g., an x% correlation in operational losses
    across different business units)? Describe how you arrived at these
    assumptions. If there is a diversification benefit, is that amount
    held at the consolidated entity level or allocated back to the
    business line? If so, how?

55. Does the operational risk exposure number, reflected in cell G104
    represent the sum of expected losses (EL) plus unexpected losses
    (UL), or UL only?

56. If the operational risk exposure number represents UL only, provide
    the following information:

    a.  Provide the EL amounts, and describe how EL is derived (e.g.
        statistically measured, subjective estimation, etc.).

    b.  Describe how EL is accounted for. In particular, describe if
        operational risk EL is addressed through GAAP-compliant
        reserves/provisions, pricing or other internal business
        practices.

    c.  Cells G114 and G115 seek specific information on fraud-related
        losses. Describe the methodology used to categorize these losses
        as UL or EL?

57. What loss data thresholds were used to collect the internal data
    underlying the calculations reported? Please be as specific as
    possible. If different thresholds were used for different business
    lines and/or event types, then each threshold should be listed
    together with a brief rationale for why that threshold value was
    chosen. Was there a mechanism through which losses under the
    threshold were reflected in either EL or in the estimate of the
    operational risk exposure (EL+UL)?

58. Describe the methodology used to take account of the effects of
    insurance.

**Legal Entity Information**

59. Does your institution currently have the following information for
    each insured subsidiary?

    a.  Estimates of minimum capital requirements -- as determined under
        the AIRB, AMA and Market Risk formulas; and

    b.  Estimated weighted average risk parameters (PD, LGD, EAD, M) for
        significant credit portfolios.

60. If the information in the question above is not currently available,
    provide an estimate of when your MIS will be modified to supply it.

61. Do all of your insured subsidiaries use the same types of obligor
    rating philosophies -- such as a \"point-in-time\" system or
    \"through-the-cycle\" system -- to the same extent and manner as the
    reporting entity?

62. Do all of your insured subsidiaries compensate for any lack of LGD
    data to the same extent and manner as the reporting entity?

63. Do all of your insured subsidiaries use the same types of reference
    data sets, or sources of data, from which parameters are estimated
    to the same extent and manner as the reporting entity?

64. Do all of your insured subsidiaries use credit risk mitigants to the
    same extent and manner as the reporting entity?

## Compliance Costs

65. Have you budgeted funds specifically for Basel II compliance? If so,
    please provide budget figures.

66. Are you investing in new IT systems that you will use for Basel II?

67. How much do you expect to spend on implementing Basel II (including
    the cost of personnel engaged in developing and operating Basel II
    systems)? If you have separate estimates for activities such as the
    following, please provide them:

    a.  Upgrading or modifying internal rating systems and risk
        management and control systems for credit risk and for
        operational risk

    b.  Upgrading or modifying IT systems

    c.  Reconstituting historic databases

    d.  Requirements going forward to preserve data on transactions

    e.  Making Pillar III disclosures

68. Please indicate what portion of each of the costs in the previous
    question you think you would incur only if Basel II is adopted, and
    what fraction you would incur for internal risk management purposes
    even if Basel I remained in effect?

69. If you have separate estimates of one-time costs and recurring
    costs, please provide them.

70. If one-time costs are spread over several years, please indicate the
    time period and the approximate fraction of costs falling in each
    year.

71. How much of the funds allocated to Basel II implementation has
    already been spent?

[^1]: For draft corporate and operational risk guidance, see 68 Fed.
    Reg. 45949 (August 4, 2003). For draft retail guidance, see 69 Fed.
    Reg. 62748 (October 27, 2004).