a. Guarantees
CA-5.8.91
Where guarantees exist, either in support of an individual obligation or a pool of exposures, a bank may reflect the risk-reducing effect either through its estimates of PD or LGD, provided this is done consistently. In adopting one or the other technique, a bank must adopt a consistent approach, both across types of guarantees and over time.
Apr 08CA-5.8.92
In all cases, both the borrower and all recognised guarantors must be assigned a borrower rating at the outset and on an ongoing basis. A bank must follow all minimum requirements for assigning borrower ratings set out in this section, including the regular monitoring of the guarantor's condition and ability and willingness to honour its obligations. Consistent with the requirements in section CA-5.8.43, a bank must retain all relevant information on the assignment of an exposure to a pool, and the estimation of PD.
Apr 08CA-5.8.93
In no case can the bank assign the guaranteed exposure an adjusted PD or LGD such that the adjusted risk weight would be lower than that of a comparable, direct exposure to the guarantor. Neither criteria nor rating processes are permitted to consider possible favourable effects of imperfect expected correlation between default events for the borrower and guarantor for purposes of regulatory minimum capital requirements. As such, the adjusted risk weight must not reflect the risk mitigation of "double default."
Apr 08
