CA-3 CA-3 Credit Risk — The Standardized Approach
CA-3.1 CA-3.1 Overview
CA-3.1.1
Basel II identifies two methodologies for calculating capital requirements for credit risk. This module sets out the rules relating to the standardized approach. The internal rating-based approach (IRB) and securitization framework are presented in a separate module. The standardized approach makes use of external credit assessments6 as a means of calculating the risk weight for an exposure to a counterparty.
6 The notations follow the methodology used by one institution, Standard & Poor's. The use of Standard & Poor's credit ratings is an example only; those of some other external credit assessment institutions could equally well be used. The ratings used throughout this document, therefore, do not express any preferences or determinations on external assessment institutions by CBB.
Apr 08CA-3.1.2
The credit equivalent amount of Securities Financing Transactions (SFT)7 and OTC derivatives that expose a bank to counterparty credit risk8 is to be calculated under the rules set forth in Appendix CA-2.
7 Securities Financing Transactions (SFT) are transactions such as repurchase agreements, reverse repurchase agreements, security lending and borrowing, and margin lending transactions, where the value of the transactions depends on the market valuations and the transactions are often subject to margin agreements.
8 The counterparty credit risk is defined as the risk that the counterparty to a transaction could default before the final settlement of the transaction's cash flows. An economic loss would occur if the transactions or portfolio of transactions with the counterparty has a positive economic value at the time of default. Unlike a firm's exposure to credit risk through a loan, where the exposure to credit risk is unilateral and only the lending bank faces the risk of loss, the counterparty credit risk creates a bilateral risk of loss: the market value of the transaction can be positive or negative to either counterparty to the transaction. The market value is uncertain and can vary over time with the movement of underlying market factors.
Apr 08CA-3.1.3
In determining the risk weights in the standardised approach, banks must use assessments by only those external credit assessment institutions which are recognised as eligible for capital purposes by CBB in accordance with the criteria defined in section CA-3.4.
Apr 08CA-3.1.4
Exposures must be risk-weighted net of specific provisions and taking eligible financial collateral. Where a discount is applied on fair value of an asset (as explained in CA-2.1.5), the value of the asset will be adjusted to exclude that discount part. Refer to appendix CA-17.
Apr 08CA-3.2 CA-3.2 Segregation of Claims
Claims on Sovereigns
CA-3.2.1
Claims on governments of GCC member states (hereinafter referred to as GCC) and their central banks can be risk weighted at 0%. Claims on other sovereigns and their central banks are given a preferential risk weighting of 0% where such claims are denominated and funded in the relevant domestic currency of that sovereign/central bank (e.g. if a Bahraini bank has a claim on government of Australia and the loan is denominated and funded in Australian dollar, it will be risk weighted at 0%). Such preferential risk weight for claims on GCC/other sovereigns and their central banks will be allowed only if the relevant supervisor also allows 0% risk weighting to claims on its sovereign and central bank.
Apr 08CA-3.2.2
Claims on sovereigns other than those referred to in the previous paragraph must be assigned risk weights as follows:
Credit Assessment AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- Below B- Unrated Risk Weight 0% 20% 50% 100% 150% 100% Apr 08Claims on International Organizations
CA-3.2.3
Claims on the Bank for International Settlements, the International Monetary Fund and the European Central Bank must receive a 0% risk weight.
Apr 08Claims on Non-central Government Public Sectors Entities (PSEs)
CA-3.2.4
Claims on the Bahraini PSEs listed in Appendix CA-18 will be treated as claims on the government of Bahrain.
Apr 08CA-3.2.5
Where other supervisors also treat claims on named PSEs as claims on their sovereigns, claims to those PSEs are treated as claims on the respective sovereigns as outlined in paragraphs CA-3.2.1 and CA-3.2.2 above. These PSE's must be shown on a list maintained by the concerned central bank or financial regulator. Where PSE's are not on such a list, they must be subject to the treatment outlined in paragraph CA-3.2.6 below.
Apr 08CA-3.2.6
Claims on all other (foreign) PSEs (i.e. not having sovereign treatment) denominated and funded in the home currency of the sovereign must be risk weighted as allowed by their home country supervisors, provided the sovereign carries rating BBB- or above. Claims on PSEs with no explicit home country weighting or to PSEs in countries of BB+ sovereign rating and below are subject to ECAI ratings as per the following table:
Credit Assessment AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- Below B- Unrated Risk Weight 20% 50% 100% 100% 150% 100% Apr 08Claims on Multilateral Development Banks (MDB's)
CA-3.2.8
MDB's currently eligible for a 0% risk weight are: the World Bank Group comprised of the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC), the Asian Development Bank (ADB), the African Development Bank (AfDB), the European Bank for Reconstruction and Development (EBRD), the Inter-American Development Bank (IADB), the European Investment Bank (EIB), the European Investment Fund (EIF), the Nordic Investment Bank (NIB), the Caribbean Development Bank (CDB), the Islamic Development Bank (IDB), Arab Monetary Fund (AMF), the Council of Europe Development Bank (CEDB), the Arab Bank for Economic Development in Africa (ABEDA), Council of European Resettlement Fund (CERF) and the Kuwait Fund for Arab Economic Development (KFAED).
Apr 08CA-3.2.9
The claims on MDB's, which do not qualify for the 0% risk weighting, should be assigned risk weights as follows:
Banks Credit Quality Grades AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- Below B- Un-rated Risk weights 20% 50% 50% 100% 150% 50% Apr 08Claims on Banks
CA-3.2.10
Claims on banks must be risk weighted as given in the following table. No claim on an unrated bank may receive a risk weight lower than that applied to claims on its sovereign of incorporation (see Guidance in Paragraph CA-3.2.11A for self-liquidating letters of credit).
Banks Credit Quality Grades AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- Below B- Un-rated Standard risk weights 20% 50% 50% 100% 150% 50% Preferential risk weight 20% 20% 20% 50% 150% 20% Amended: April 2012
April 2008CA-3.2.11
Short-term claims on locally incorporated banks may be assigned a risk weighting of 20% where such claims on the banks are of an original maturity of 3 months or less denominated and funded in either BD or US$. A preferential risk weight that is one category more favourable than the standard risk weighting may be assigned to claims on foreign banks licensed in Bahrain of an original maturity of 3 months or less denominated and funded in the relevant domestic currency (other than claims on banks that are rated below B-). Such preferential risk weight for short-term claims on banks licensed in other jurisdictions will be allowed only if the relevant supervisor also allows this preferential risk weighting to short-term claims on its banks.
Apr 08CA-3.2.11A
Self-liquidating letters of credit issued or confirmed by an unrated bank will be allowed a risk weighting of 50% or 20% without reference to the risk weight of the sovereign of incorporation. All other claims will be subject to the 'sovereign floor' of the country of incorporation of the concerned issuing or confirming bank.
Added: April 2012CA-3.2.12
Claims with an (contractual) original maturity under 3 months that are expected to be rolled over (i.e. where the effective maturity is longer than 3 months) will not qualify for a preferential treatment for capital adequacy purposes.
Apr 08Claims on Investment Firms
CA-3.2.13
Claims on category one and category two investment firms which are subject to direct supervisory and regulatory provisions from the CBB may be treated as claims on banks for risk weighting purposes but without the use of preferential risk weight for short-term claims. Claims on category three investment firms must be treated as claims on corporates for risk weighting purposes. Claims on investment firms in other jurisdictions will be treated as claims on corporates for risk weighting purposes. However, if the bank can demonstrate that the concerned investment firm is subject to a Basel II equivalent capital adequacy regime and is treated as a bank for risk weighting purposes by its home regulator, then claims on such investment firms may be treated as claims on banks.
Apr 08Claims on Corporates, including Insurance Companies
CA-3.2.14
Risk weighting for corporates including insurance companies is as follows:
Credit assessment AAA to AA- A+ to A- BBB+ to BB- Below BB- Unrated Risk weight 20% 50% 100% 150% 100% Apr 08CA-3.2.15
Risk weighting for unrated (corporate) claims will be reviewed and where appropriate, may be increased by the CBB. Credit facilities to small/medium enterprises may be placed in the regulatory retail portfolio in limited cases below.
Amended January 2009
Apr 08Claims included in the Regulatory Retail Portfolios
CA-3.2.16
No claim on any unrated corporate, where said corporate originates from a foreign jurisdiction, may be given a risk weight lower than that assigned to a corporate within its own jurisdiction, and in no case will it be below 100%.
Apr 08CA-3.2.17
Retail claims that are included in the regulatory retail portfolio must be risk weighted at 75%, except as provided in CA-3.2.23 for the past due loans.
Apr 08CA-3.2.18
To be included in the regulatory retail portfolio, claims must meet the following criteria:
(a) Orientation — the exposure is to an individual person or persons or to a small business. A small business is a Bahrain-based business with annual turnover below BD 2mn;(b) Product — The exposure takes the form of any of the following: revolving credits and lines of credit (including credit cards and overdrafts), personal term loans and leases (e.g. auto leases, student loans) and small business facilities. Securities (such as bonds and equities), whether listed or not, are specifically excluded from this category. Mortgage loans will be excluded if they qualify for treatment as claims secured by residential property (see below). Loans for purchase of shares are also excluded from the regulatory retail portfolios;(c) Granularity — The regulatory retail portfolio is sufficiently diversified to a degree that reduces the risks in the portfolio, warranting a 75% risk weight. No aggregate exposure to one counterpart9 can exceed 0.2% of the overall regulatory retail portfolio; and(d) The maximum aggregated retail exposure to one counterpart must not exceed an absolute limit of BD 250,000.
9 Aggregated exposure means gross amount (i.e. not taking any credit risk mitigation into account) of all forms of debt exposures (e.g. loans or commitments) that individually satisfy the three other criteria. In addition, "to one counterpart" means one or several entities that may be considered as a single beneficiary (e.g. in the case of a small business that is affiliated to another small business, the limit would apply to the bank's aggregated exposure on both businesses).
Amended: April 2011
Amended January 2009
Apr 08Claims Secured by Residential Property
CA-3.2.19
Lending fully secured by first mortgages on residential property that is or will be occupied by the borrower, or that is leased, must carry a risk weighting of 75%. However, if the bank can justify foreclosure or repossession for a claim, the risk weight allowed will be 35%. To get this lower risk weight the bank must obtain a satisfactory legal opinion that foreclosure or repossession is possible without any impediment.
Apr 08Claims Secured by Commercial Real Estate
CA-3.2.20
Claims secured by mortgages on commercial real estate are subject to a minimum of 100% risk weight. If the borrower is rated below BB-, the risk-weight corresponding to the rating of the borrower must be applied.
Apr 08Past Due Loans
CA-3.2.21
The unsecured portion of any loan (other than a qualifying residential mortgage loan) that is past due for more than 90 days, net of specific provisions (including partial write-offs), must be risk-weighted as follows:
(a)150% risk weight when specific provisions are less than 20% of the outstanding amount of the loan; and(b)100% risk weight when specific provisions are greater than 20% of the outstanding amount of the loan.Amended: April 2011
Apr 08CA-3.2.22
For the purposes of defining the secured portion of a past due loan, eligible collateral and guarantees will be the same as for credit risk mitigation purposes.
Apr 08CA-3.2.23
Past due retail loans are to be excluded from the overall regulatory retail portfolio when assessing the granularity criterion, for risk-weighting purposes.
Apr 08CA-3.2.24
In the case of qualifying residential mortgage loans, when such loans are past due for more than 90 days, they must be risk weighted at 100% net of specific provisions.
Apr 08Higher-risk Categories
CA-3.2.25
Holdings of securitization tranches that are rated between BB+ and BB- are risk weighted at 350%.
Apr 08Investments in Equities and Funds
CA-3.2.26
Investments in listed equities must be risk weighted at 100% while equities other than listed must be risk weighted at 150%.
Apr 08CA-3.2.27
Investments in funds (e.g. mutual funds, Collective Investment Undertakings etc.) must be risk weighted as follows:
• If the instrument (e.g. units) is rated, it should be risk-weighted according to its external rating (for risk-weighting, it must be treated as a "claim on corporate");• If not rated, such investment should be treated as an equity investment and risk weighted accordingly (i.e. 100% for listed and 150% for others);• The bank can apply to CBB for using the look-through approach for such investments if it can demonstrate that the look-through approach is more appropriate to the circumstances of the bank;• If there are no voting rights attached to investment in funds, the investment will not be subjected to consolidation and deduction requirements (except large exposure limits);• For the purpose of determining "large exposure limit" for investment in funds, the look-through approach should be used (even if the look-through approach is not used to risk weight the investment).Apr 08CA-3.2.28
CBB may enforce a bank to adopt one of the IRB treatments for equities if the CBB considers that bank's equity portfolio is significant.
Apr 08Holdings of Real Estate
CA-3.2.29
All holdings of real estate by banks (i.e. owned directly or by way of investments in Real Estate Companies, subsidiaries or associate companies or other arrangements such as trusts, funds or REITs) must be risk-weighted at 200%. Premises occupied by the bank may be weighted at 100%. Investments in Real Estate Companies will be subject to the materiality thresholds for commercial companies described in Module PCD and therefore any holdings which amount to 15% or more of regulatory capital will be subject to deduction. The holdings below the 15% threshold will be weighted at 200%.
Apr 08Other Assets
CA-3.2.30
Gold bullion held in own vaults or on an allocated basis to the extent backed by bullion liabilities may be treated as cash and therefore risk-weighted at 0%. In addition, cash items in the process of collection must be risk-weighted at 20%. The standard risk weight for all other assets will be 100%. Investments in regulatory capital instruments issued by banks or investment firms must be risk weighted at a minimum of 100%, unless they are deducted from the capital base according to the Prudential Consolidation and Deduction Requirements Module.
Apr 08Underwriting of Non-trading Book Items
CA-3.2.31
Where a bank has acquired assets on its balance sheet in the banking book which it is intending to place with third parties under a formal arrangement and is underwriting the placement, the following risk weightings apply during the underwriting period (which may not last for more than 90 days). Once the underwriting period has expired, the usual risk weights should apply:
(a) For holdings of private equity, a risk weighting of 100% will apply instead of the usual 150% (see CA-3.2.26); and(b) For holdings of Real Estate, a risk weight of 100% will apply instead of the usual 200% risk weight (see CA-3.2.29).Amended: April 2011
Apr 08CA-3.3 CA-3.3 Off-balance Sheet Items
CA-3.3.1
Off-balance-sheet items must be converted into credit exposure equivalents applying credit conversion factors (CCFs). Counterparty risk weightings for OTC derivative transactions will not be subject to any specific ceiling.
Apr 08CA-3.3.2
Commitments with an original maturity of up to one year and commitments with an original maturity of over one year will receive a CCF of 20% and 50%, respectively.
Apr 08CA-3.3.3
Any commitments that are unconditionally cancellable at any time by the bank without prior notice, or that are subject to automatic cancellation due to deterioration in a borrowers' creditworthiness, will receive a 0% CCF.
Apr 08CA-3.3.4
Direct credit substitutes, e.g. general guarantees of indebtedness (including standby letters of credit serving as financial guarantees for loans and securities) and acceptances (including endorsements with the character of acceptances) must receive a CCF of 100%.
Apr 08CA-3.3.5
Sale and repurchase agreements and asset sales with recourse, where the credit risk remains with the bank, must receive a CCF of 100%.
Apr 08CA-3.3.6
A CCF of 100% must be applied to the lending of banks' securities or the posting of securities as collateral by banks, including instances where these arise out of repo-style transactions (i.e. repurchase/reverse repurchase and securities lending/securities borrowing transactions). See Section CA-4.3 for the calculation of risk-weighted assets where the credit converted exposure is secured by eligible collateral.
Apr 08CA-3.3.7
Forward asset purchases, forward deposits and partly-paid shares and securities, which represent commitments with certain drawdown must receive a CCF of 100%.
Apr 08CA-3.3.8
Certain transaction-related contingent items (e.g. performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions) must receive CCF of 50%.
Apr 08CA-3.3.9
Note issuance facilities and revolving underwriting facilities must receive a CCF of 50%.
Apr 08CA-3.3.10
For short-term self-liquidating trade letters of credit arising from the movement of goods, a 20% CCF must be applied to both issuing and confirming banks.
Apr 08CA-3.3.11
Where there is an undertaking to provide a commitment on an off-balance sheet item, banks are to apply the lower of the two applicable CCF's.
Apr 08CA-3.3.12
Credit equivalent amount of OTC derivatives and SFTs that expose a bank to counterparty credit risk must be calculated as per Appendix CA-2.
Apr 08CA-3.3.13
Banks must closely monitor securities, commodities, and foreign exchange transactions that have failed, starting the first day they fail. A capital charge to failed transactions must be calculated in accordance with CBB guidelines set forth in Appendix CA-4.
Apr 08CA-3.3.14
With regard to unsettled securities, commodities, and foreign exchange transactions, banks are encouraged to develop, implement and improve systems for tracking and monitoring the credit risk exposure arising from unsettled transactions as appropriate for producing management information that facilitates action on a timely basis.
Apr 08CA-3.3.15
Furthermore, when such transactions are not processed through a delivery-versus-payment (DvP) or payment-versus-payment (PvP) mechanism, banks must calculate a capital charge as set forth in Appendix CA-4.
Apr 08CA-3.4 CA-3.4 External Credit Assessments
The Recognition Process and Eligibility Criteria
CA-3.4.1
CBB will assess all External Credit Assessment Institutions (ECAI) according to the six criteria below. Any failings, in whole or in part, to satisfy these to the fullest extent will result in the respective ECAI's methodology and associated resultant rating not being accepted by the CBB:
(a) Objectivity: The methodology for assigning credit assessments must be rigorous, systematic, and subject to some form of validation based on historical experience. Moreover, assessments must be subject to ongoing review and responsive to changes in financial condition. Before being recognized by the CBB, an assessment methodology for each market segment, including rigorous back testing, must have been established for an absolute minimum of one year and with a preference of three years;(b) Independence: An ECAI must show independence and should not be subject to political or economic pressures that may influence the rating. The assessment process should be as free as possible from any constraints that could arise in situations where the composition of the board of directors, political pressure, the shareholder structure of the assessment institution or any other aspect could be seen as creating a conflict of interest;(c) International access/Transparency: The individual assessments should be available to both domestic and foreign institutions with legitimate interests and at equivalent terms. The general methodology used by the ECAI has to be publicly available;(d) Disclosure: An ECAI is required to disclose the following information: its assessment methodologies, including the definition of default, the time horizon, and the meaning of each rating; the actual default rates experienced in each assessment category; and the transitions of the assessments, e.g. the likelihood of a slide in the ratings of an exposure from one class to another over time;(e) Resources: An ECAI must have sufficient resources to carry out high quality credit assessments. These resources should allow for substantial ongoing contact with senior and operational levels within the entities assessed in order to add value to the credit assessments. Such assessments will be based on methodologies combining qualitative and quantitative approaches; and(f) Credibility: Credibility, to a certain extent, can derive from the criteria above. In addition, the reliance on an ECAI's external credit assessments by independent parties (investors, insurers, trading partners) may be evidence of the credibility of the assessments of an ECAI. The credibility of an ECAI will also be based on the existence of internal procedures to prevent the misuse of confidential information. In order to be eligible for recognition, an ECAI does not have to assess firms in more than one country.Amended: April 2011
Apr 08CA-3.4.2
The CBB recognizes Standard and Poor's, Moody's, Fitch IBCA and Capital Intelligence as eligible ECAIs. With respect to the possible recognition of other rating agencies as eligible ECAIs, CBB will update this paragraph subject to the rating agencies satisfying the eligibility requirements. (See Appendix 16 for mapping of eligible ECAIs).
Apr 08CA-3.4.3
Banks must use the chosen ECAIs and their ratings consistently for each type of claim, for both risk weighting and risk management purposes. Banks will not be allowed to "cherry-pick" the assessments provided by different eligible ECAIs.
Apr 08CA-3.4.4
Banks must disclose ECAIs that they use for the risk weighting of their assets by type of claims, the risk weights associated with the particular rating grades as determined by CBB through the mapping process as well as the aggregated risk-weighted assets for each risk weight based on the assessments of each eligible ECAI.
Apr 08Multiple Assessments
CA-3.4.5
If there are two assessments by eligible ECAIs chosen by a bank which map into different risk weights, the higher risk weight must be applied.
Apr 08CA-3.4.6
If there are three or more assessments by eligible ECAIs chosen by a bank which map into different risk weights, the assessments corresponding to the two lowest risk weights should be referred to and the higher of those two risk weights must be applied.
Apr 08Issuer Versus Issues Assessment
CA-3.4.7
Where a bank invests in a particular issue that has an issue-specific assessment, the risk weight of the claim will be based on this assessment. Where the bank's claim is not an investment in a specific assessed issue, the following general principles apply:
(a) In circumstances where the borrower has a specific assessment for an issued debt — but the bank's claim is not an investment in this particular debt — a high quality credit assessment (one which maps into a risk weight lower than that which applies to an unrated claim) on that specific debt may only be applied to the bank's un-assessed claim if this claim ranks pari passu or senior to the claim with an assessment in all respects. If not, the credit assessment cannot be used and the un-assessed claim will receive the risk weight for unrated claims; and(b) In circumstances where the borrower has an issuer assessment, this assessment typically applies to senior unsecured claims on that issuer. Consequently, only senior claims on that issuer will benefit from a high quality issuer assessment. Other un-assessed claims of a highly assessed issuer will be treated as unrated. If either the issuer or a single issue has a low quality assessment (mapping into a risk weight equal to or higher than that which applies to unrated claims), an un-assessed claim on the same counterparty will be assigned the same risk weight as is applicable to the low quality assessment.Amended: April 2011
Apr 08CA-3.4.8
Whether the bank intends to rely on an issuer- or an issue-specific assessment, the assessment must take into account and reflect the entire amount of credit risk exposure the bank has with regard to all payments owed to it.10
10 For example, if a bank is owed both principal and interest, the assessment must fully take into account and reflect the credit risk associated with repayment of both principal and interest.
Apr 08CA-3.4.9
In order to avoid any double counting of credit enhancement factors, no recognition of credit risk mitigation techniques will be taken into account if the credit enhancement is already reflected in the issue specific rating (see paragraph CA-4.1.5).
Apr 08Domestic Currency and Foreign Currency Assessments
CA-3.4.10
Where unrated exposures are risk weighted based on the rating of an equivalent exposure to that borrower, the general rule is that foreign currency ratings would be used for exposures in foreign currency. Domestic currency ratings, if separate, would only be used to risk weight claims denominated in the domestic currency.
Apr 08CA-3.4.11
However, when an exposure arises through a bank's participation in a loan that has been extended, or has been guaranteed against convertibility and transfer risk, by certain MDBs, its convertibility and transfer risk can be considered by CBB, on a case by case basis, to be effectively mitigated. To qualify, MDBs must have preferred creditor status recognised in the market and be included in MDB's qualifying for 0% risk rate under CA-3.2.8. In such cases, for risk weighting purposes, the borrower's domestic currency rating may be used instead of its foreign currency rating. In the case of a guarantee against convertibility and transfer risk, the local currency rating can be used only for the portion that has been guaranteed. The portion of the loan not benefiting from such a guarantee will be risk-weighted based on the foreign currency rating.
Apr 08Short-term/Long-term Assessments
CA-3.4.12
For risk-weighting purposes, short-term assessments are deemed to be issue-specific. They can only be used to derive risk weights for claims arising from the rated facility. They cannot be generalised to other short-term claims, except under the conditions of paragraph CA-3.4.14. In no event can a short-term rating be used to support a risk weight for an unrated long-term claim. Short-term assessments may only be used for short-term claims against banks and corporates. The table below provides a framework for banks' exposures to specific short-term facilities, such as a particular issuance of commercial paper:
Credit assessment A-1/P-111 A-2/P-2 A-3/P-3 Others12 Risk weight 20% 50% 100% 150%
11The notations follow the methodology used by Standard & Poor's and by Moody's Investors Service. The A-1 rating of Standard & Poor's includes both A-1+ and A-1-.
12This category includes all non-prime and B or C ratings.
Apr 08CA-3.4.13
If a short-term rated facility attracts a 50% risk-weight, unrated short-term claims cannot attract a risk weight lower than 100%. If an issuer has a short-term facility with an assessment that warrants a risk weight of 150%, all unrated claims, whether long-term or short-term, should also receive a 150% risk weight, unless the bank uses recognised credit risk mitigation techniques for such claims.
Apr 08CA-3.4.14
For short-tem claims on banks, the interaction with specific short-term assessments is expected to be the following:
(a) The general preferential treatment for short-term claims, as defined under paragraphs CA-3.2.11 and CA-3.2.12, applies to all claims on banks of up to three months original maturity when there is no specific short-term claim assessment;(b) When there is a short-term assessment and such an assessment maps into a risk weight that is more favourable (i.e. lower) or identical to that derived from the general preferential treatment, the short-term assessment should be used for the specific claim only. Other short-term claims would benefit from the general preferential treatment; and(c) When a specific short-term assessment for a short term claim on a bank maps into a less favourable (higher) risk weight, the general short-term preferential treatment for inter-bank claims cannot be used. All unrated short-term claims should receive the same risk weighting as that implied by the specific short-term assessment.Amended: April 2011
Apr 08CA-3.4.15
When a short-term assessment is to be used, the institution making the assessment needs to meet all of the eligibility criteria for recognising ECAIs as presented in paragraph CA-3.4.1 in terms of its short-term assessment.
Apr 08Level of Application of the Assessment
CA-3.4.16
External assessments for one entity within a corporate group must not be used to risk weight other entities within the same group.
Apr 08Unsolicited Ratings
CA-3.4.17
As a general rule, banks should use solicited ratings from eligible ECAIs but they are also allowed to use unsolicited ratings in the same way as solicited ratings. However, there may be the potential for ECAIs to use unsolicited ratings to put pressure on entities to obtain solicited ratings. If such behaviour is identified, CBB may disallow the use of unsolicited ratings.
Apr 08
