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  • (ii) Implicit Support

    • CA-6.4.5

      When a bank provides implicit support to a securitisation, it must, at a minimum, hold capital against all of the exposures associated with the securitisation transaction as if they had not been securitised. Additionally, banks would not be permitted to recognise in regulatory capital any gain-on-sale, as defined in paragraph CA-6.4.3. Furthermore, the bank is required to disclose publicly that (a) it has provided non-contractual support and (b) the capital impact of doing so.

      Apr 08

    • Operational Requirements for use of External Credit Assessments

      • CA-6.4.6

        The following operational criteria concerning the use of external credit assessments apply in the standardised and IRB approaches of the securitisation framework:

        (a) To be eligible for risk-weighting purposes, the external credit 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. 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 timely repayment of both principal and interest;
        (b) The exteral credit assessments must be from an eligible ECAI as recognised by the CBB in accordance with section CA-3.4 with the following exception. In contrast with (c) of paragraph CA-3.4.1, an eligible credit assessment must be publicly available. In other words, a rating must be published in an accessible form and included in the ECAI's transition matrix. Consequently, ratings that are made available only to the parties to a transaction do not satisfy this requirement;
        (c) Eligible ECAIs must have a demonstrated expertise in assessing securitisations, which may be evidenced by strong market acceptance;
        (d) A bank must apply external credit assessments from eligible ECAIs consistently across a given type of securitisation exposure. Furthermore, a bank cannot use the credit assessments issued by one ECAI for one or more tranches and those of another ECAI for other positions (whether retained or purchased) within the same securitisation structure that may or may not be rated by the first ECAI. Where two or more eligible ECAIs can be used and these assess the credit risk of the same securitisation exposure differently, paragraphs CA-3.4.5 and CA-3.4.6 will apply;
        (e) Where CRM is provided directly to an SPSV by an eligible guarantor defined in paragraph CA-4.5.7 and is reflected in the external credit assessment assigned to a securitisation exposure(s), the risk weight associated with that external credit assessment should be used. In order to avoid any double counting, no additional capital recognition is permitted. If the CRM provider is not recognised as an eligible guarantor in paragraph CA-4.5.7, the covered securitisation exposures should be treated as unrated; and
        (f) In the situation where a credit risk mitigant is not obtained by the SPSV but rather applied to a specific securitisation exposure within a given structure (e.g. ABS tranche), the bank must treat the exposure as if it is unrated and then use the CRM treatment outlined in chapter CA-4 or in the foundation IRB approach of chapter CA-5, to recognise the hedge.
        Amended: April 2011
        Apr 08

      • CA-6.4.6A

        A bank is not permitted to use any external credit assessment for risk-weighting purposes where the assessment is at least partly based on unfunded support provided by the bank. For example, if a bank buys ABCP where it provides an unfunded securitisation exposure extended to the ABCP programme (e.g. liquidity facility or credit enhancement), and that exposure plays a role in determining the credit assessment on the ABCP, the bank must treat the ABCP as if it were not rated. The bank must continue to hold capital against the other securitisation exposures it provides (e.g. against the liquidity facility and/or credit enhancement). The treatment described above is also applicable to exposures held in the trading book. A bank's capital requirement for such exposures held in the trading book can be no less than the amount required under the banking book treatment. Banks are permitted to recognise overlap in their exposures, consistent with CA-6.4.23. For example, a bank providing a liquidity facility supporting 100% of the ABCP issued by an ABCP programme and purchasing (for its own account) 20% of the outstanding ABCP of that programme could recognise an overlap of 20% (100% liquidity facility + 20% CP held – 100% CP issued = 20%). If a bank provided a liquidity facility that covered 90% of the outstanding ABCP and purchased 20% of the ABCP, the two exposures would be treated as if 10% of the two exposures overlapped (90% liquidity facility + 20% CP held – 100% CP issued = 10%). If a bank provided a liquidity facility that covered 50% of the outstanding ABCP and purchased 20% of the ABCP, the two exposures would be treated as if there were no overlap.

        Added: January 2012

    • Standardised Approach for Securitisation Exposures

      • (i) Scope

        • CA-6.4.7

          Banks that apply the standardised approach to credit risk for the type of underlying exposure(s) securitised must use the standardised approach under the securitisation framework.

          Apr 08

      • (ii) Risk Weights

        • CA-6.4.8

          The risk-weighted asset amount of a securitisation exposure is computed by multiplying the amount of the position by the appropriate risk weight determined in accordance with the following tables. For off-balance sheet exposures, banks must apply a CCF and then risk weight the resultant credit equivalent amount. If such an exposure is rated, a CCF of 100% must be applied. For positions with long-term ratings of B+ and below and short-term ratings other than A-1/P-1, A-2/P-2, A-3/P-3, deduction from capital as defined in paragraph CA-6.4.2 is required. Deduction is also required for unrated positions with the exception of the circumstances described in paragraphs CA-6.4.12 to CA-6.4.16.

          The following risk weights are applied in the standardised approach.

          Long term rating50 Securitisation Exposure Re-securitisation Exposure
          AAA to AA- 20% 40%
          A+ to A- 50% 100%
          BBB+ to BBB- 100% 225%
          BB+ to BB- 350% 650%
          B+ and below or unrated Deduction Deduction

          Short term rating Securitisation Exposure Re-securitisation Exposure
          A-1/P-1 20% 40%
          A-2/P-2 50% 100%
          A-3/P-3 100% 225%
          All other ratings or unrated Deduction Deduction

          50 The rating designations used in the following tables are for illustrative purposes only and do not indicate any preference for, or endorsement of, any particular external assessment system.

          Amended: January 2012
          Apr 08

        • CA-6.4.9

          The capital treatment of positions retained by originators, liquidity facilities, credit risk mitigants, and securitisations of revolving exposures are identified separately. The treatment of clean-up calls is provided in paragraphs CA-6.3.5 to CA-6.3.7.

          Apr 08

    • Recognition of Ratings on Below-investment Grade Exposures

      • CA-6.4.10

        Only third-party investors, as opposed to banks that serve as originators, may recognise external credit assessments that are equivalent to BB+ to BB- for risk weighting purposes of securitisation exposures.

        Apr 08

    • Originators to Deduct Below-investment Grade Exposures

      • CA-6.4.11

        Originating banks as defined in paragraph CA-6.2.1 must deduct all retained securitisation exposures rated below investment grade (i.e. BBB-).

        Apr 08