The Capital Requirements Regulations 2006

Regulation 22

SCHEDULE 2 Mapping

1.—(1) In order to differentiate between the relative degrees of risk expressed by each credit assessment, the Authority must consider quantitative factors such as the long-term default rate associated with all items assigned the same credit assessment.

(2) For recently established ECAIs and for those that have compiled only a short record of default data, the Authority must ask the ECAI what it believes to be the long-term default rate associated with all items assigned the same credit assessment.

2.  In order to differentiate between the relative degrees of risk expressed by each credit assessment, the Authority must consider qualitative factors such as—

(a) the pool of issuers that the ECAI covers;

(b) the range of credit assessments that the ECAI assigns;

(c) each credit assessment meaning;

(d) the ECAI’s definition of default.

3.  The Authority must compare default rates experienced for each credit assessment of an ECAI and compare them with a benchmark built on the basis of default rates experienced by other ECAIs on a population of issuers which the Authority believes to present an equivalent level of credit risk.

4.  Where the Authority believes that the default rates experienced for the credit assessment of an ECAI are materially and systematically higher than the benchmark, the Authority must assign a higher credit quality step in the credit quality assessment scale to the ECAI’s credit assessment.

5.  Where the Authority has increased the associated risk weight for a credit assessment of an ECAI, if the ECAI demonstrates that the default rates experienced for its credit assessment are no longer materially and systematically higher than the benchmark, the Authority may decide to restore the original credit quality step in the credit quality assessment scale for the ECAI’s credit assessment.