CA-4.7 CA-4.7 Other Items Related to the Treatment of CRM Techniques
Treatment of Pools of CRM Techniques
CA-4.7.1
In the case where a
conventional bank licensee has multiple CRM techniques covering a single exposure (e.g. a bank has both collateral and guarantee partially covering an exposure), theconventional bank licensee is required to subdivide the exposure into portions covered by each type of CRM technique (e.g. portion covered by collateral, portion covered by guarantee) and the risk-weighted assets of each portion must be calculated separately. When credit protection provided by a single protection provider has differing maturities, they must be subdivided into separate protection as well.January 2015First-to-default Credit Derivatives
CA-4.7.2
There are cases where a
conventional bank licensee obtains credit protection for a basket of reference names and where the first default among the reference names triggers the credit protection and the credit event also terminates the contract. In this case, theconventional bank licensee may recognise regulatory capital relief for the asset within the basket with the lowest risk-weighted amount, but only if the notional amount is less than or equal to the notional amount of the credit derivative.January 2015CA-4.7.3
With regard to the
conventional bank licensee providing credit protection through such an instrument, if the product has an external credit assessment from an eligible credit assessment institution, the risk weight in Paragraph CA-6.4.8 applied to securitisation tranches will be applied. If the product is not rated by an eligible external credit assessment institution, the risk weights of the assets included in the basket will be aggregated up to a maximum of 1250% and multiplied by the nominal amount of the protection provided by the credit derivative to obtain the risk-weighted asset amount.January 2015Second-to-default Credit Derivatives
CA-4.7.4
In the case where the second default among the assets within the basket triggers the credit protection, the
conventional bank licensee obtaining credit protection through such a product will only be able to recognise any capital relief if first-default-protection has also be obtained or when one of the assets within the basket has already defaulted.January 2015CA-4.7.5
For
conventional bank licensees providing credit protection through such a product, the capital treatment is the same as in Paragraph CA-4.7.3 above with one exception. The exception is that, in aggregating the risk weights, the asset with the lowest risk weighted amount can be excluded from the calculation.January 2015