Basel II requires banks to estimate downturn loss given default (LGD) for regulatory purposes, but doesn't consider the correlation between probability of default (PD) and LGD. A model was developed to address this by adding conservatism to LGD estimates. Historical data was used to calibrate the model, showing that LGD needs to be increased by 35-41% for corporate portfolios and 16% for mid-market portfolios to account for the lack of correlations. This framework can help banks estimate and justify their LGD choices for different portfolios, and has broader applications in areas like structured finance and credit derivatives.