X1PART THREECAPITAL REQUIREMENTS

Annotations:
Editorial Information

TITLE IICAPITAL REQUIREMENTS FOR CREDIT RISK

F1CHAPTER 5Securitisation

Annotations:
Amendments (Textual)

Section 3Calculation of risk-weighted exposure amounts

Subsection 2Hierarchy of methods and common parameters

Article 255Determination of K IRB and K SA

1

Where an institution applies the SEC-IRBA under Subsection 3, the institution shall calculate K IRB in accordance with paragraphs 2 to 5.

2

Institutions shall determine K IRB by multiplying the risk-weighted exposure amounts that would be calculated under Chapter 3 in respect of the underlying exposures as if they had not been securitised by 8 % divided by the exposure value of the underlying exposures. K IRB shall be expressed in decimal form between zero and one.

3

For K IRB calculation purposes, the risk-weighted exposure amounts that would be calculated under Chapter 3 in respect of the underlying exposures shall include:

a

the amount of expected losses associated with all the underlying exposures of the securitisation including defaulted underlying exposures that are still part of the pool in accordance with Chapter 3; and

b

the amount of unexpected losses associated with all the underlying exposures including defaulted underlying exposures in the pool in accordance with Chapter 3.

4

Institutions may calculate K IRB in relation to the underlying exposures of the securitisation in accordance with the provisions set out in Chapter 3 for the calculation of capital requirements for purchased receivables. For these purposes, retail exposures shall be treated as purchased retail receivables and non-retail exposures as purchased corporate receivables.

5

Institutions shall calculate K IRB separately for dilution risk in relation to the underlying exposures of a securitisation where dilution risk is material to such exposures.

Where losses from dilution and credit risks are treated in an aggregate manner in the securitisation, institutions shall combine the respective K IRB for dilution and credit risk into a single K IRB for the purposes of Subsection 3. The presence of a single reserve fund or overcollateralisation available to cover losses from either credit or dilution risk may be regarded as an indication that these risks are treated in an aggregate manner.

Where dilution and credit risk are not treated in an aggregate manner in the securitisation, institutions shall modify the treatment set out in the second subparagraph to combine the respective K IRB for dilution and credit risk in a prudent manner.

6

Where an institution applies the SEC-SA under Subsection 3, it shall calculate K SA by multiplying the risk-weighted exposure amounts that would be calculated under Chapter 2 F6of this Regulation and Articles 132a to 132c of Chapter 3 of the Standardised Approach and Internal Ratings Based Approach to Credit Risk (CRR) Part of the PRA Rulebook in respect of the underlying exposures as if they had not been securitised by 8 % divided by the value of the underlying exposures. K SA shall be expressed in decimal form between zero and one.

For the purposes of this paragraph, institutions shall calculate the exposure value of the underlying exposures without netting any specific credit risk adjustments and additional value adjustments in accordance with Articles 34 and 110 and other own funds reductions.

7

For the purposes of paragraphs 1 to 6, where a securitisation structure involves the use of an SSPE, all the SSPE’s exposures related to the securitisation shall be treated as underlying exposures. Without prejudice to the preceding, the institution may exclude the SSPE’s exposures from the pool of underlying exposures for K IRB or K SA calculation purposes if the risk from the SSPE’s exposures is immaterial or if it does not affect the institution’s securitisation position.

In the case of funded synthetic securitisations, any material proceeds from the issuance of credit-linked notes or other funded obligations of the SSPE that serve as collateral for the repayment of the securitisation positions shall be included in the calculation of K IRB or K SA if the credit risk of the collateral is subject to the tranched loss allocation.

F28

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9

The F3F5PRA may make technical standards to further specify the conditions to allow institutions to calculate K IRB for the pools of underlying exposures in accordance with paragraph 4, in particular with regard to:

a

internal credit policy and models for calculating K IRB for securitisations;

b

use of different risk factors relating to the pool of underlying exposures and, where sufficient accurate or reliable data on that pool are not available, of proxy data to estimate PD and LGD; and

c

due diligence requirements to monitor the actions and policies of sellers of receivables or other originators.

F4...