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  • (vi) Capital Requirement for Early Amortisation Provisions

    • Scope

      • CA-6.4.32

        As described below, an originating bank is required to hold capital against all or a portion of the investors' interest (i.e. against both the drawn and un-drawn balances related to the securitised exposures) when:

        (a) It sells exposures into a structure that contains an early amortisation feature; and
        (b) The exposures sold are of a revolving nature. These involve exposures where the borrower is permitted to vary the drawn amount and repayments within an agreed limit under a line of credit (e.g. credit card receivables and corporate loan commitments).
        Apr 08

      • CA-6.4.33

        The capital requirement should reflect the type of mechanism through which an early amortisation is triggered.

        Apr 08

      • CA-6.4.34

        For securitisation structures wherein the underlying pool comprises revolving and term exposures, a bank must apply the relevant early amortisation treatment (outlined below in paragraphs CA-6.4.36 to CA-6.4.47) to that portion of the underlying pool containing revolving exposures.

        Apr 08

      • CA-6.4.35

        Banks are not required to calculate a capital requirement for early amortisations in the following situations:

        (a) Replenishment structures where the underlying exposures do not revolve and the early amortisation ends the ability of the bank to add new exposures;
        (b) Transactions of revolving assets containing early amortisation features that mimic term structures (i.e. where the risk on the underlying facilities does not return to the originating bank);
        (c) Structures where a bank securitises one or more credit line(s) and where investors remain fully exposed to future draws by borrowers even after an early amortisation event has occurred;
        (d) The early amortisation clause is solely triggered by events not related to the performance of the securitised assets or the selling bank, such as material changes in tax laws or regulations.
        Apr 08

    • Maximum Capital Requirement

      • CA-6.4.36

        For a bank subject to the early amortisation treatment, the total capital charge for all of its positions will be subject to a maximum capital requirement (i.e. a 'cap') equal to the greater of (i) that required for retained securitisation exposures, or (ii) the capital requirement that would apply had the exposures not been securitised. In addition, banks must deduct the entire amount of any gain-on-sale and credit enhancing I/Os arising from the securitisation transaction in accordance with paragraphs CA-6.4.2 to CA-6.4.4.

        Apr 08

    • Mechanics

      • CA-6.4.37

        The originator's capital charge for the investors' interest is determined as the product of (a) the investors' interest, (b) the appropriate CCF (as discussed below), and (c) the risk weight appropriate to the underlying exposure type, as if the exposures had not been securitised. As described below, the CCFs depend upon whether the early amortisation repays investors through a controlled or non-controlled mechanism. They also differ according to whether the securitised exposures are uncommitted retail credit lines (e.g. credit card receivables) or other credit lines (e.g. revolving corporate facilities). A line is considered uncommitted if it is unconditionally cancellable without prior notice.

        Apr 08