Standardised Approach for Securitisation Exposures
(i) Scope
CA-6.4.7
Conventional bank licensees that apply the standardised approach tocredit risk for the type of underlying exposure(s) securitised must use the standardised approach under the securitisation framework.January 2015(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,
conventional bank licensees 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.Long term rating36 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 1,250% 1,250% 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 1,250% 1,250%
36 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.
January 2015CA-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.January 2015Recognition of Ratings on Below-Investment Grade Exposures
CA-6.4.10
Only third-party investors, as opposed to
conventional bank licensees that serve as originators, may recognise external credit assessments that are equivalent to BB+ to BB- for risk weighting purposes of securitisation exposures.January 2015Originators to Apply 1,250% Risk Weight to all Below-Investment Grade Exposures
CA-6.4.11
Originating banks as defined in paragraph CA-6.2.1 must risk weight all retained securitisation exposures rated below investment grade (i.e. BBB-) at 1,250%.
January 2015(iii) Exceptions to General Treatment of Unrated Securitisation Exposures
CA-6.4.12
As noted in the tables above, unrated securitisation exposures must be risk weighted at 1,250% with the following exceptions: (i) the most senior exposure in a securitisation, (ii) exposures that are in a second loss position or better in ABCP programmes and meet the requirements outlined in Paragraph CA-6.4.15, and (iii) eligible liquidity facilities.
January 2015Treatment of Unrated Most Senior Securitisation Exposures
CA-6.4.13
If the most senior exposure in a securitisation of a traditional or synthetic securitisation is unrated, a
conventional bank licensee that holds or guarantees such an exposure may determine the risk weight by applying the "look-through" treatment, provided the composition of the underlying pool is known at all times.Conventional bank licensees are not required to consider interest rate or currency swaps when determining whether an exposure is the most senior in a securitisation for the purpose of applying the "look-through" approach.January 2015CA-6.4.14
In the look-through treatment, the unrated most senior position receives the average risk weight of the underlying exposures subject to CBB review. Where the
conventional bank licensee is unable to determine the risk weights assigned to the underlyingcredit risk exposures, the unrated position must be risk-weighted at 1,250%.January 2015Treatment of Exposures in a Second Loss Position or Better in ABCP Programmes
CA-6.4.15
A 1,250% risk weighting is not required for those unrated securitisation exposures provided by sponsoring
conventional bank licensees to ABCP programmes that satisfy the following requirements:(a) The exposure is economically in a second loss position or better and the first loss position provides significant credit protection to the second loss position;(b) The associatedcredit risk is the equivalent of investment grade or better; and(c) Theconventional bank licensee holding the unrated securitisation exposure does not retain or provide the first loss position.January 2015CA-6.4.16
Where these conditions are satisfied, the risk weight is the greater of (i) 100% or (ii) the highest risk weight assigned to any of the underlying individual exposures covered by the facility.
January 2015Risk Weights for Eligible Liquidity Facilities
CA-6.4.17
For eligible liquidity facilities as defined in Paragraph CA-6.4.19 and where the conditions for use of external credit assessments in Paragraph CA-6.4.6 are not met, the risk weight applied to the exposure's credit equivalent amount is equal to the highest risk weight assigned to any of the underlying individual exposures covered by the facility.
January 2015(iv) Credit Conversion Factors for Off-Balance Sheet Exposures
CA-6.4.18
For risk-based capital purposes,
conventional bank licensees must determine whether, according to the criteria outlined below, an off-balance sheet securitisation exposure qualifies as an 'eligible liquidity facility' or an 'eligible servicer cash advance facility'. All other off-balance sheet securitisation exposures will receive a 100% CCF.January 2015Eligible Liquidity Facilities
CA-6.4.19
Conventional bank licensees are permitted to treat off-balance sheet securitisation exposures as eligible liquidity facilities if the following minimum requirements are satisfied:(a) The facility documentation must clearly identify and limit the circumstances under which it may be drawn. Draws under the facility must be limited to the amount that is likely to be repaid fully from the liquidation of the underlying exposures and any seller-provided credit enhancements. In addition, the facility must not cover any losses incurred in the underlying pool of exposures prior to a draw, or be structured such that draw-down is certain (as indicated by regular or continuous draws);(b) The facility must be subject to an asset quality test that precludes it from being drawn to covercredit risk exposures where the obligor is more than 90 days past due on any material risk in the banking group. In addition, if the exposures that a liquidity facility is required to fund are externally rated securities, the facility can only be used to fund securities that are externally rated investment grade at the time of funding;(c) The facility cannot be drawn after all applicable (e.g. transaction-specific and programme-wide) credit enhancements from which the liquidity would benefit have been exhausted; and(d) Repayment of draws on the facility (i.e. assets acquired under a purchase agreement or loans made under a lending agreement) must not be subordinated to any interests of any note holder in the programme (e.g. ABCP programme) or subject to deferral or waiver.January 2015CA-6.4.20
Where these conditions are met, the
conventional bank licensee may apply a 50% CCF to the eligible facility regardless of the maturity of the facility. However, if an external rating of the facility itself is used for risk-weighting the facility, a 100% CCF must be applied.January 2015CA-6.4.21
[This Paragraph has been deleted in January 2012].
January 2015CA-6.4.22
[This Paragraph has been deleted in January 2012].
January 2015Treatment of Overlapping Exposures
CA-6.4.23
A
conventional bank licensee may provide several types of facilities that can be drawn under various conditions. The sameconventional bank licensee may be providing two or more of these facilities. Given the different triggers found in these facilities, it may be the case that aconventional bank licensee provides duplicative coverage to the underlying exposures. In other words, the facilities provided by aconventional bank licensee may overlap since a draw on one facility may preclude (in part) a draw under the other facility. In the case of overlapping facilities provided by the sameconventional bank licensee , theconventional bank licensee does not need to hold additional capital for the overlap. Rather, it is only required to hold capital once for the position covered by the overlapping facilities (whether they are liquidity facilities or credit enhancements). Where the overlapping facilities are subject to different conversion factors, theconventional bank licensee must attribute the overlapping part to the facility with the highest conversion factor. However, if overlapping facilities are provided by different banks, eachconventional bank licensee must hold capital for the maximum amount of the facility (see also Paragraph CA-6.4.6A).January 2015Eligible Servicer Cash Advance Facilities
CA-6.4.24
If contractually provided for, servicers may advance cash to ensure an uninterrupted flow of payments to investors so long as the servicer is entitled to full reimbursement and this right is senior to other claims on cash flows from the underlying pool of exposures. A 0% CCF must be applied to such un-drawn servicer cash advances or facilities provided that these are unconditionally cancellable without prior notice.
January 2015Treatment of Credit Risk Mitigation for Securitisation Exposures
CA-6.4.25
The treatment below applies to a
conventional bank licensee that has obtained acredit risk mitigant on a securitisation exposure.Credit risk mitigants include guarantees, credit derivatives, collateral and on-balance sheet netting. Collateral in this context refers to that used to hedge thecredit risk of a securitisation exposure rather than the underlying exposures of the securitisation transaction.January 2015CA-6.4.26
When a
conventional bank licensee other than the originator provides credit protection to a securitisation exposure, it must calculate a capital requirement on the covered exposure as if it were an investor in that securitisation. If aconventional bank licensee provides protection to an unrated credit enhancement, it must treat the credit protection provided as if it were directly holding the unrated credit enhancement.January 2015Collateral
Guarantees and Credit Derivatives
CA-6.4.28
Credit protection provided by the entities listed in Paragraph CA-4.5.7 may be recognised. SPSVs cannot be recognised as eligible guarantors. A
conventional bank licensee must not recognise any support provided by itself (see also Paragraph CA-6.4.6).January 2015Maturity Mismatches
(vi) Capital Requirement for Early Amortisation Provisions
Scope
CA-6.4.32
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).January 2015CA-6.4.33
The capital requirement should reflect the type of mechanism through which an early amortisation is triggered.
January 2015CA-6.4.34
For securitisation structures wherein the underlying pool comprises revolving and term exposures, a
conventional bank licensee must apply the relevant early amortisation treatment (outlined in Paragraphs CA-6.4.36 to CA-6.4.47) to that portion of the underlying pool containing revolving exposures.January 2015CA-6.4.35
Conventional bank licensees 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 theconventional bank licensee 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; and(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.January 2015Maximum Capital Requirement
CA-6.4.36
For a
conventional bank licensee 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,conventional bank licensees 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.January 2015Mechanics
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.
January 2015(vii) Determination of CCFs for Controlled Early Amortisation Features
CA-6.4.38
An early amortisation feature is considered controlled when the definition as specified in Paragraph CA-6.2.6 is satisfied.
January 2015Uncommitted Retail Exposures
CA-6.4.39
For uncommitted retail credit lines (e.g. credit card receivables) in securitisations containing controlled early amortisation features,
conventional bank licensees must compare the three-month average excess spread defined in Paragraph CA-6.2.8 to the point at which theconventional bank licensee is required to trap excess spread as economically required by the structure (i.e. excess spread trapping point).January 2015CA-6.4.40
In cases where such a transaction does not require excess spread to be trapped, the trapping point is deemed to be 4.5 percentage points.
January 2015CA-6.4.41
The
conventional bank licensee must divide the excess spread level by the transaction's excess spread trapping point to determine the appropriate segments and apply the corresponding conversion factors, as outlined in the following table.Controlled Early Amortisation Features
Uncommitted Committed Retail credit lines 3-month average excess spread Credit Conversion Factor (CCF)
133.33% of trapping point or more
0% CCF
less than 133.33% to 100% of trapping point
1% CCF
less than 100% to 75% of trapping point
2% CCF
less than 75% to 50% of trapping point
10% CCF
less than 50% to 25% of trapping point
20% CCF
less than 25%
40% CCF90% CCF Non-retail credit lines 90% CCF 90% CCF January 2015CA-6.4.42
Conventional bank licensees are required to apply the conversion factors set out above for controlled mechanisms to the investors' interest referred to in Paragraph CA-6.4.37.January 2015Other Exposures
CA-6.4.43
All other securitised revolving exposures (i.e. those that are committed and all non-retail exposures) with controlled early amortisation features will be subject to a CCF of 90% against the off-balance sheet exposures.
January 2015(viii) Determination of CCFs for Non-Controlled Early Amortisation Features
CA-6.4.44
Early amortisation features that do not satisfy the definition of a controlled early amortisation as specified in Paragraph CA-6.2.6 will be considered non-controlled and treated as follows.
January 2015Uncommitted Retail Exposures
CA-6.4.45
For uncommitted retail credit lines (e.g. credit card receivables) in securitisations containing non-controlled early amortisation features,
conventional bank licensees must make the comparison described in Paragraphs CA-6.4.38 and CA-6.4.40.January 2015CA-6.4.46
The
conventional bank licensee must divide the excess spread level by the transaction's excess spread trapping point to determine the appropriate segments and apply the corresponding conversion factors, as outlined in the following table.Non-Controlled Early Amortisation Features
Uncommitted Committed Retail credit lines 3-month average excess spread
Credit Conversion Factor (CCF)
133.33% or more of trapping point
0% CCF
less than 133.33% to 100% of trapping point
5% CCF
less than 100% to 75% of trapping point
15% CCF
less than 75% to 50% of trapping point
50% CCF
less than 50% of trapping point
100% CCF100% CCF Non-retail credit lines 100% CCF 100% CCF January 2015Other Exposures
CA-6.4.47
All other securitised revolving exposures (i.e. those that are committed and all non-retail exposures) with non-controlled early amortisation features will be subject to a CCF of 100% against the off-balance sheet exposures.
January 2015[Paragraphs CA-6.4.48 to CA-6.4.88 were deleted in January 2015]
