Minimum Capital Requirements for Credit Risk

In accordance with the hierarchy of approaches determined in 18.41 to 18.47 , a bank must infer a rating for an unrated position and use the SEC-ERBA provided that the requirements set out in 20.10 are met. These requirements are intended to ensure that the unrated position is pari passu or senior in all respects to an externally-rated securitization exposure termed the “reference securitization exposure”. 20.10 The following operational requirements must be satisfied to recognize inferred ratings: (1) The reference securitization exposure (e.g. asset-backed security) must rank pari passu or be subordinate in all respects to the unrated securitization exposure. Credit enhancements, if any, must be taken into account when assessing the relative subordination of the unrated exposure and the reference securitization exposure. For example, if the reference securitization exposure benefits from any third-party guarantees or other credit enhancements that are not available to the unrated exposure, then the latter may not be assigned an inferred rating based on the reference securitization exposure. (2) The maturity of the reference securitization exposure must be equal to or longer than that of the unrated exposure. (3) On an ongoing basis, any inferred rating must be updated continuously to reflect any subordination of the unrated position or changes in the external rating of the reference securitization exposure. (4) The external rating of the reference securitization exposure must satisfy the general requirements for recognition of external ratings as delineated in 20.8 . Alternative Capital Treatment for Term STC Securitizations and Short- Term STC Securitizations Meeting the STC Criteria for Capital Purposes 20.11 Securitization transactions that are assessed as simple, transparent and comparable (STC)-compliant for capital purposes as defined in 18.67 can be subject to capital requirements under the securitization framework, taking into account that, when the SEC-ERBA is used, 20.12, 20.13, and 20.14 are applicable instead of 20.2, 20.4 and 20.7 respectively. 20.12 For exposures with short-term ratings, or when an inferred rating based on a short-term rating is available, the following risk weights in table 30 below will apply: ERBA STC risk weights for short-term ratings Table 30 External credit assessment A-1/P-1 A-2/P-2 A-3/P-3 All other ratings Risk weight 10% 30% 60% 1250% 20.13 For exposures with long-term ratings, risk weights will be determined according to Table 31 and will be adjusted for tranche maturity (calculated according to 18.22 and 18.23 ), and tranche thickness for non-senior tranches according to 20.5 and 20.6 . ERBA STC risk weights for long-term ratings Table 31 Rating Senior tranche Non-senior (thin) tranche Tranche maturity (M T ) Tranche maturity (M T ) 1 year 5 years 1 year 5 years AAA 10% 10% 15% 40% AA+ 10% 15% 15% 55% AA 15% 20% 15% 70% AA- 15% 25% 25% 80% A+ 20% 30% 35% 95% A 30% 40% 60% 135% A- 35% 40% 95% 170% BBB+ 45% 55% 150% 225% BBB 55% 65% 180% 255% BBB- 70% 85% 270% 345% BB+ 120% 135% 405% 500% BB 135% 155% 535% 655% BB- 170% 195% 645% 740% B+ 225% 250% 810% 855% B 280% 305% 945% 945% B- 340% 380% 1015% 1015% CCC+/CCC/CCC- 415% 455% 1250% 1250% Below CCC- 1250% 1250% 1250% 1250% 20.14 The resulting risk weight is subject to a floor risk weight of 10% for senior tranches, and 15% for non-senior tranches. 21. Securitization: Internal Assessment Approach (SEC- IAA) No: 44047144 Date(g): 27/12/2022 | Date(h): 4/6/1444 Status: In-Force Internal Assessment Approach (SEC-IAA)