(iv) Ratings-Based Approach (RBA)
CA-6.4.53
Under the RBA, the risk-weighted assets are determined by multiplying the amount of the exposure by the appropriate risk weights, provided in the tables in paragraph CA-6.4.58 and CA-6.4.59.
Apr 08CA-6.4.54
The risk weights depend on (i) the external rating grade or an available inferred rating, (ii) whether the credit rating (external or inferred) represents a long-term or a short term credit rating, (iii) the granularity of the underlying pool and (iv) the seniority of the position.
Apr 08CA-6.4.55
For purposes of the RBA, a securitisation exposure is treated as a senior tranche if it is effectively backed or secured by a first claim on the entire amount of the assets in the underlying securitised pool. While this generally includes only the most senior position within a securitisation transaction, in some instances there may be some other claim that, in a technical sense, may be more senior in the waterfall (e.g. a swap claim) but may be disregarded for the purpose of determining which positions are subject to the "senior tranches" column.
Apr 08CA-6.4.56
Examples:
(a) In a typical synthetic securitisation, the "super-senior" tranche would be treated as a senior tranche, provided that all of the conditions for inferring a rating from a lower tranche are fulfilled;(b) In a traditional securitisation where all tranches above the first-loss piece are rated, the most highly rated position would be treated as a senior tranche. However, when there are several tranches that share the same rating, only the most senior one in the waterfall would be treated as senior; and(c) Usually a liquidity facility supporting an ABCP programme would not be the most senior position within the programme; the commercial paper, which benefits from the liquidity support, typically would be the most senior position. However, a liquidity facility may be viewed as covering all losses on the underlying receivables pool that exceed the amount of overcollateralization or reserves provided by the seller and as being most senior only if it is sized to cover all of the outstanding commercial paper and other senior debt supported by the pool, so that no cash flows from the underlying pool could be transferred to other creditors until any liquidity draws were repaid in full. In such a case, the RBA risk weights in the left-most column can be used. If these conditions are not satisfied or for other reasons the liquidity facility constitutes a mezzanine position in economic substance rather than a senior position in the underlying pool, then the "Base risk weights" column is applicable.Amended: January 2012
Amended: April 2011
Apr 08CA-6.4.57
The risk weights provided in the table in paragraph CA-6.4.58 apply when the external assessment represents a long-term credit rating, as well as when an inferred rating based on a long-term rating is available.
Apr 08CA-6.4.58
Banks may apply the risk weights for senior positions if the effective number of underlying exposures (N, as defined in paragraph CA-6.4.77) is 6 or more and the position is senior as defined above. When N is less than 6, the risk weights in column 4 of the first table below apply. In all other cases, the risk weights in column 3 of the first table below apply.
RBA risk weights when the external assessment represents a long-term credit rating and/or an inferred rating derived from a long-term assessment External Rating (Illustrative) Risk weights for senior positions and eligible senior IAA exposures Base risk weights Risk weights for tranches backed by non-granular pools AAA 7% 12% 20% AA 8% 15% 25% A+ 10% 18% 35% A 12% 20% A- 20% 35% BBB+ 35% 50% BBB 60% 75% BBB- 100% BB+ 250% BB 425% BB- 650% Below BB- and unrated Deduction Apr 08CA-6.4.59
The risk weights in the table below apply when the external assessment represents a short-term credit rating, as well as when an inferred rating based on a short-term rating is available. The decision rules outlined in paragraph CA-6.4.58 also apply for short-term credit ratings.
RBA risk weights when the external assessment represents a short-term credit rating and/or an inferred rating derived from a short-term assessment External Rating (Illustrative) Risk weights for senior positions and eligible senior IAA exposures Base risk weights Risk weights for tranches backed by non-granular A-1/P- 7% 12% 2 A-2/P- 12% 20% 3 A-3/P- 60% 75% 7 All other ratings/unrated Deduction Deduction Deduction Apr 08Use of Inferred Ratings
