Example: Credit Risk Scenario 
The following example illustrates a hypothetical scenario for a euro debt crisis.
In the IRB approach, all the risk parameter specifications are applied in the specified countries to the country portfolio only; in the standardized approach for credit risk, they are also applied to multilateral development banks and other public sector entities. These specifications are characterized by their own asset classes in each approach.
PD stress: scenario for the segmentation of the PIIGS countries
Country
Risk Parameter Specification
Greece
PD = 15% (stressed PD value)
Portugal
Downgrading of current rating by 3 notches
Ireland
Downgrading of current rating by 2 notches
Spain
Downgrading of current rating by 2 notches
Italy
Relative increase of current PD value by 10%
The unstressed ratings apply to all other countries and asset classes.
Loss given default (LGD)
An LGD scenario is defined in the same segmentation as for the PD stress scenario. This is restricted to the same countries and asset classes:
Country
Risk Parameter Specification
Greece
Absolute shift of the current LGD by 10%
Portugal
Relative shift of the current LGD by 10%
Ireland
Default stressed LGD value of 43.5%
Spain
Default stressed LGD value of 41.2%
Italy
Absolute shift of the current LGD by 5%
The unstressed LGDs apply to all other countries and asset classes.
Financial collateral/reductions in the value of government bonds
The stress refers to a reduction in the value of government bonds, which are used as collateral for credit exposures, by the specified percentage:
Country
Risk Parameter Specification
Greece
50 %
Portugal
15 %
Ireland
15 %
Spain
10 %
Italy
3 %
The securities are not stressed for all other countries and asset classes.