There is uncertainty around the interpretation of the F factor. One view was that it was intented to be 100% in most cases, where a full recovery of the collateral balance is expected and would be 50% in cases where a haircut to collateral is required. Another view is that the formula gives a sensible result where the F factor is 50% and this is essentially scaling the value of collateral in line with the 50% multiplier to the Recoverables amount. Otherwise the LGD would almost always be zero because 100% * Colleratal would almost always be larger than 50% * Recoverables. I an unsure when the 100% F factor would apply.

The answer to this question is provided by the European Commission.

Article 192 of Delegated Regulation (EU) 2015/35 as amended by Delegated Regulation (EU) 2019/981 specifies four factors (F, F', F'' and F''') for the calculation of the loss given default. The values of those factors are set out in Article 197(7), which provides for two alternatives for each factor, depending on certain circumstances. According to Article 197(7) of Delegated Regulation (EU) 2015/35 as amended by Delegated Regulation (EU) 2019/981, these factors shall all be 100% when, in case of insolvency of the counterparty, the determination of the insurance or reinsurance undertaking's proportional share of the counterparty's insolvency estate in excess of the collateral does not take into account that the undertaking receives the collateral. In all other cases F, F', F'' and F''' shall be 50%, 18%, 16% and 90% respectively.
Whether values of 100% have to be attributed to the factors F, F', F'' and F''' ultimately depends on the bankruptcy law and restructuring proceedings in a given jurisdiction.

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The answers clarify provisions already contained in the applicable legislation. They do not extend in any way the rights and obligations deriving from such legislation nor do they introduce any additional requirements for the concerned operators and competent authorities. The answers are merely intended to assist natural or legal persons, including competent authorities and Union institutions and bodies, in clarifying the application or implementation of the relevant legal provisions. Only the Court of Justice of the European Union is competent to authoritatively interpret Union law. The views expressed in the internal Commission Decision cannot prejudge the position that the European Commission might take before the Union and national courts.