What is 'loss equivalent class' in SAP IS-B-RA-CL - Default Risk and Limit System?

loss equivalent class - Overview

• Component: IS-B-RA-CL

• Component Name: Default Risk and Limit System

• Description: In the calculation of the expected exposure, expected loss and country value-at-risk, the loss equivalent class categorizes the part of a free external commitment that is expected to be drawn upon at the time the business partner defaults.

loss equivalent class - Details

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  Key Concepts: 
  Loss equivalent class is a concept used in the IS-B-RA-CL Default Risk and Limit System. It is a way of grouping together different types of losses that have similar characteristics. This allows for more accurate risk assessment and better management of risk. 
  
  How to use it: 
  The loss equivalent class is used to assign a risk rating to each type of loss. This rating is then used to determine the amount of capital that must be set aside to cover potential losses. The higher the risk rating, the more capital must be set aside. 
  
  Tips & Tricks: 
  When assigning a risk rating to a loss equivalent class, it is important to consider the potential severity of the losses as well as the likelihood of them occurring. This will help ensure that the right amount of capital is set aside for each type of loss. 
  
  Related Information: 
  The IS-B-RA-CL Default Risk and Limit System also includes other concepts such as credit limit, exposure limit, and collateral limit. These concepts are all related to managing risk and ensuring that enough capital is set aside to cover potential losses.