Minimum Capital Requirements for Market Risk

To assign a securitisation exposure to a bucket, banks must rely on a classification that is commonly used in the market for grouping securitisation exposures by type and region of underlying. (1) The bank must assign each securitisation exposure to one and only one of the buckets above and it must assign all securitisations with the same type and region of underlying to the same bucket. (2) Any securitisation exposure that a bank cannot assign to a type or region of underlying in this fashion must be assigned to the “other bucket”. 8.33 The capital requirement for default risk of securitisations (non-CTP) is determined using a similar approach to that for non-securitisations. The DRC requirement within a bucket is calculated as follows: (1) The hedge benefit discount HBR, as defined in [ 8.23 ], is applied to net short securitisation exposures in that bucket. (2) The capital requirement is calculated as in [8.25] . 8.34 For calculating the weighted net JTD, the risk weights of securitisation exposures are defined by the tranche instead of the credit quality. The risk weight for securitisations (non-CTP) is applied as follows: (1) The default risk weights for securitisation exposures are based on the corresponding risk weights for banking book instruments, as set out in 18 to 22 of Minimum Capital Requirements for Credit Risk with the following modification: the maturity component in the banking book securitisation framework is set to zero (ie a one-year maturity is assumed) to avoid doublecounting of risks in the maturity adjustment (of the banking book approach) since migration risk in the trading book will be captured in the credit spread capital requirement. (2) Following the corresponding treatment in the banking book, the hierarchy of approaches in determining the risk weights should be applied at the underlying pool level. (3) The capital requirement under the standardised approach for an individual cash securitisation position can be capped at the fair value of the transaction. 8.35 No hedging is recognised between different buckets. Therefore, the total capital requirement for default risk securitisations must be calculated as a simple sum of the bucket-level capital requirements. Default Risk Capital Requirement for Securitisations (CTP) Gross jump-to-default risk positions (gross JTD) 8.36 For the computation of gross JTD on securitisations (CTP), the same approach must be followed as for default risk-securitisations (non-CTP) as described in [ 8.27 ]. 8.37 The gross JTD for non-securitisations (CTP) (ie single-name and index hedges) positions is defined as their market value. 8.38 Nth-to-default products should be treated as tranched products with attachment and detachment points defined below, where “Total names” is the total number of names in the underlying basket or pool: (1) Attachment point = (N – 1) / Total names (2) Detachment point = N / Total names Net jump-to-default risk positions (net JTD)