Minimum Capital Requirements for Credit Risk

For exposures to all other MDBs, banks will assign to their MDB exposures the corresponding “base” risk weights determined by the external ratings according to Table 3. Risk weight table for MDB exposures Table 3 External rating of counterparty AAA to AA– A+ to A– BBB+ to BBB– BB+ to B– Below B– Unrated “Base” risk weight 20% 30% 50% 100% 150% 50% 4 MDBs that request to be added to the list of MDBs eligible for a 0% risk weight must comply with the AAA rating criterion at the time of the application to the BCBS. Once included in the list of eligible MDBs, the rating may be downgraded, but in no case lower than AA–. Otherwise, exposures to such MDBs will be subject to the treatment set out in paragraph 7.11 Exposures to Banks 7.12 For the purposes of calculating capital requirements, a bank exposure is defined as a claim (including loans and senior debt instruments, unless considered as subordinated debt for the purposes of paragraph 7.52 ) on any financial institution that is licensed to take deposits from the public and is subject to appropriate prudential standards and level of supervision 5 . The treatment associated with subordinated bank debt and equities is addressed in paragraphs 7.46 to 7.52 . Risk weight determination 7.13 Bank exposures will be risk-weighted based on the following hierarchy: 1. External Credit Risk Assessment Approach (ECRA): This approach applies to all rated exposures to banks. Banks will apply chapter 8 to determine which rating can be used and for which exposures. 2. Standardized Credit Risk Assessment Approach (SCRA): This approach is applicable to all exposures to banks that are unrated. External Credit Risk Assessment Approach (ECRA) 7.14 Banks will assign to their rated bank exposures 6 the corresponding “base” risk weights determined by the external ratings according to Table 4. Such ratings must not incorporate assumptions of implicit government support 7 , unless the rating refers to a public bank owned by its government. Banks may continue to use external ratings, which incorporate assumptions of implicit government support for up to a period of five years, from the date of effective implementation of this framework, when assigning the “base” risk weights in Table 4 to their bank exposures. Risk weight table for bank exposures External Credit Risk Assessment Approach (ECRA) Table 4 External rating of counterparty AAA to AA– A+ to A– BBB+ to BBB– BB+ to B– Below B– “Base” risk weight 20% 30% 50% 100% 150% Risk weight for short-term exposures 20% 20% 20% 50% 150% 7.15 Exposures to banks with an original maturity of three months or less, as well as exposures to banks that arise from the movement of goods across national borders with an original maturity of six months or less 8 can be assigned a risk weight that correspond to the risk weights for short term exposures in Table 4. 7.16 Banks must perform due diligence to ensure that the external ratings appropriately and conservatively reflect the creditworthiness of the bank counterparties. If the due diligence analysis reflects higher risk characteristics than that implied by the external rating bucket of the exposure (i.e. AAA to AA– ; A+ to A– etc.), the bank must assign a risk weight at least one bucket higher than the “base” risk weight determined by the external rating. Due diligence analysis must never result in the application of a lower risk weight than that determined by the external rating. Standardized Credit Risk Assessment Approach (SCRA)