The capital charge is calculated as follows:

(1) Tranche's IRB capital charge = the amount of exposures that have been securitised times the greater of (a) 0.0056 x T, or (b) (S [L+T] - S [L]).

Where the function S[.] (termed the 'Supervisory Formula') is defined in the following paragraph. When the bank holds only a proportional interest in the tranche, that position's capital charge equals the prorated share of the capital charge for the entire tranche.