CA-5.3.34
Past version: Effective from 01 Apr 2008 to 31 Mar 2011
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A bank using an IRB approach has the option of using the substitution approach in determining the appropriate capital requirement for an exposure. However, for exposures hedged by one of the following instruments the double default framework according to paragraphs CA-5.3.12 to CA-5.3.16 may be applied subject to the additional operational requirements set out in paragraph CA-5.3.39. A bank may decide separately for each eligible exposure to apply either the double default framework or the substitution approach.
(a) Single-name, unfunded credit derivatives (e.g. credit default swaps) or single-name guarantees.
(b) First-to-default basket products — the double default treatment will be applied to the asset within the basket with the lowest risk-weighted amount.
(c) nth-to-default basket products — the protection obtained is only eligible for consideration under the double default framework if eligible (n-1)th default protection has also been obtained or where (n-1) of the assets within the basket have already defaulted.
Apr 08