Example 1. A bank extended a line of credit of $120 ml to company Z. The company has drawn $50 ml. The company is assumed to have a Usage Given Default (UGD) rate of 40% and companies with similar credit ratings are known to have a probability of default of 20%. The asset recovery rate (RR = 1 - LGD) is estimated at 50% of total asset value. The variance o? observed in LGD is 20% and in PD is 10%, respectively. How much capital reserve must the bank have to cover any UL? Example 1. A bank extended a line of credit of $120 ml to company Z. The company has drawn $50 ml. The company is assumed to have a Usage Given Default (UGD) rate of 40% and companies with similar credit ratings are known to have a probability of default of 20%. The asset recovery rate (RR = 1 - LGD) is estimated at 50% of total asset value. The variance ? observed in LGD is 20% and in PD is 10%, respectively. How much capital reserve must the bank have to cover any UL? ro Example 1. A bank extended a line of credit of $120 ml to company Z. The company has drawn $50 ml. The company is assumed to have a Usage Given Default (UGD) rate of 40% and companies with similar credit ratings are known to have a probability of default of 20%. The asset recovery rate (RR = 1 - LGD) is estimated at 50% of total asset value. The variance o? observed in LGD is 20% and in PD is 10%, respectively. How much capital reserve must the bank have to cover any UL? Example 1. A bank extended a line of credit of $120 ml to company Z. The company has drawn $50 ml. The company is assumed to have a Usage Given Default (UGD) rate of 40% and companies with similar credit ratings are known to have a probability of default of 20%. The asset recovery rate (RR = 1 - LGD) is estimated at 50% of total asset value. The variance ? observed in LGD is 20% and in PD is 10%, respectively. How much capital reserve must the bank have to cover any UL? ro