CA-5.4.5

For all other retail exposures that are not in default, risk weights are assigned based on the following function, which allows correlation to vary with PD:

Correlation (R) = 0.03 × (1 - EXP(-35 × PD)) / (1 - EXP(-35)) + 0.16 × [1 - (1 - EXP(-35 × PD))/(1 - EXP(-35))]

Capital requirement (K) = LGD × N[(1 - R)^-0.5 × G(PD) + (R / (1 - R))^0.5 × G(0.999)] - PD x LGD

Risk-weighted assets = K × 12.5 × EAD

The capital requirement (K) for a defaulted exposure is equal to the greater of zero and the difference between its LGD (described in paragraph CA-5.8.79) and the bank's best estimate of expected loss (described in paragraph CA-5.8.82). The risk-weighted asset amount for the defaulted exposure is the product of K, 12.5, and the EAD.

Illustrative risk weights are shown in Appendix CA-6.