Minimum Capital Requirements for Credit Risk

In the case of exposures at the transaction level, compliance with the short-term STC capital criteria is considered to be achieved if the transaction level criteria are satisfied for the transactions to which support is provided. 92 For instance, transactions in which assets are sold to a special purpose entity sponsored by a bank’s customer and then either a security interest in the assets is granted to the ABCP conduit to secure a loan made by the ABCP conduit to the sponsored special purpose entity, or an undivided interest is sold to the ABCP conduit. Criterion A1: Nature of Assets (Conduit Level) 18.99 The sponsor should make representations and warranties to investors that the criterion set out in 18.100 below are met, and explain how this is the case on an overall basis. Only if specified should this be done for each transaction. Provided that each individual underlying transaction is homogeneous in terms of asset type, a conduit may be used to finance transactions of different asset types. Programme wide credit enhancement should not prevent a conduit from qualifying for STC, regardless of whether such enhancement technically creates resecuritisation. Criterion A1: Nature of Assets (Transaction Level) 18.100 The assets underlying a transaction in a conduit should be credit claims or receivables that are homogeneous, in terms of asset type. 93 The assets underlying each individual transaction in a conduit should not be composed of “securitization exposures” as defined in 18.4 . Credit claims or receivables underlying a transaction in a conduit should have contractually identified periodic payment streams relating to rental, 94 principal, interest, or principal and interest payments. Credit claims or receivables generating a single payment stream would equally qualify as eligible. Any referenced interest payments or discount rates should be based on commonly encountered market interest rates, 95 but should not reference complex or complicated formulae or exotic derivatives. 96 93 For the avoidance of doubt, this criterion does not automatically exclude securitizations of equipment leases and securitizations of auto loans and leases from the short-term STC framework. 94 Payments on operating and financing lease are typically considered to be rental payments rather than payments of principal and interest. 95 Commonly encountered market interest rates may include rates reflective of a lender’s cost of funds, to the extent sufficient data is provided to the sponsors to allow them to assess their relation to other market rates. 96 The Global Association of Risk Professionals defines an exotic instrument as a financial asset or instrument with features making it more complex than simpler, plain vanilla, products. Additional Guidance for Criterion A1