Minimum Capital Requirements for Market Risk

No hedging is recognised between different buckets - the total DRC requirement for non- securitisations must be calculated as a simple sum of the bucket level capital requirements. 35 Note that this paragraph refers to the scaling of gross JTD (ie not net JTD). 36 SAMA Minimum Capital Requirements for Credit Risk . Default Risk Capital Requirement for Securitisations (Non-CTP) Gross jump-to-default risk positions (gross JTD) 8.27 For the computation of gross JTD on securitisations, the same approach must be followed as for default risk (non-securitisations), except that an LGD ratio is not applied to the exposure. Because the LGD is already included in the default risk weights for securitisations to be applied to the securitisation exposure (see below), to avoid double counting of LGD the JTD for securitisations is simply the market value of the securitisation exposure (ie the JTD for tranche positions is their market value). 8.28 For the purposes of offsetting and hedging recognition for securitisations (non-CTP), positions in underlying names or a non-tranched index position may be decomposed proportionately into the equivalent replicating tranches that span the entire tranche structure. When underlying names are treated in this way, they must be removed from the non-securitisation default risk treatment. Net jump-to-default risk positions (net JTD) 8.29 For default risk of securitisations (non-CTP), offsetting is limited to a specific securitisation exposure (ie tranches with the same underlying asset pool). This means that: (1) no offsetting is permitted between securitisation exposures with different underlying securitised portfolio (ie underlying asset pools), even if the attachment and detachment points are the same; and (2) no offsetting is permitted between securitisation exposures arising from different tranches with the same securitised portfolio. 8.30 Securitisation exposures that are otherwise identical except for maturity may be offset. The same offsetting rules for non-securitisations including scaling down positions of less than one year as set out in [8.15] through [8.18] apply to JTD risk positions for securitisations (non- CTP). Offsetting within a specific securitisation exposure is allowed as follows. (1) Securitisation exposures that can be perfectly replicated through decomposition may be offset. Specifically, if a collection of long securitisation exposures can be replicated by a collection of short securitisation exposures, then the securitisation exposures may be offset. (2) Furthermore, when a long securitisation exposure can be replicated by a collection of short securitisation exposures with different securitised portfolios, then the securitisation exposure with the “mixed” securitisation portfolio may be offset by the combination of replicating securitisation exposures. (3) After the decomposition, the offsetting rules would apply as in any other case. As in the case of default risk (non-securitisations), long and short securitisation exposures should be determined from the perspective of long or short the underlying credit, eg the bank making losses on a long securitisation exposure in the event of a default in the securitised portfolio. Calculation of default risk capital requirement for securitisations (non-CTP) 8.31 For default risk of securitisations (non-CTP), the buckets are defined as follows: (1) Corporates (excluding small and medium enterprises) – this bucket takes into account all regions. (2) Other buckets – these are defined along two dimensions: (a) Asset classes: the 11 asset classes are defined as asset-backed commercial paper; auto Loans/Leases; residential mortgage-backed securities (MBS); credit cards; commercial MBS; collateralised loan obligations; collateralised debt obligation (CDO)-squared; small and medium enterprises; student loans, other retail; and other wholesale. (b) Regions: the four regions are defined as Asia, Europe, North America and all other.