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  • 4. Recognition of Credit Risk Mitigants

    • CA-5.6.9

      Credit risk mitigants will be recognised generally using the same type of framework as set forth in paragraphs CA-5.3.33 to CA-5.3.37. In particular, a guarantee provided by the seller or a third party will be treated using the existing IRB rules for guarantees, regardless of whether the guarantee covers default risk, dilution risk, or both:

      (a) If the guarantee covers both the pool's default risk and dilution risk, the bank will substitute the risk weight for an exposure to the guarantor in place of the pool's total risk weight for default and dilution risk;
      (b) If the guarantee covers only default risk or dilution risk, but not both, the bank will substitute the risk weight for an exposure to the guarantor in place of the pool's risk weight for the corresponding risk component (default or dilution). The capital requirement for the other component will then be added; and
      (c) If a guarantee covers only a portion of the default and/or dilution risk, the uncovered portion of the default and/or dilution risk will be treated as per the existing CRM rules for proportional or tranched coverage (i.e. the risk weights of the uncovered risk components will be added to the risk weights of the covered risk components).
      Amended: April 2011
      Apr 08

    • CA-5.6.10

      If protection against dilution risk has been purchased, and the conditions of paragraphs CA-5.3.38 and CA-5.3.39 are met, the double default framework may be used for the calculation of the risk-weighted asset amount for dilution risk. In this case, paragraphs CA-5.3.12 to CA-5.3.16 apply with PDo being equal to the estimated EL, LGDg being equal to 100 percent, and effective maturity being set according to paragraph CA-5.6.6.

      Apr 08