CA-5.3.31
Eligible guarantees from eligible guarantors will be recognised as follows:
(a) For the covered portion of the exposure, a risk weight is derived by taking:
• the risk-weight function appropriate to the type of guarantor, and
• the PD appropriate to the guarantor's borrower grade, or some grade between the underlying obligor and the guarantor's borrower grade if the bank deems a full substitution treatment not to be warranted.
(b) The bank may replace the LGD of the underlying transaction with the LGD applicable to the guarantee taking into account seniority and any collateralisation of a guaranteed commitment.
Apr 08