(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
