SA-DRC for Securitisations (Non-CTP)

 ∑|net JTD_short| is a simple sum of the net (not risk-weighted) short JTD risk amounts.

232 An AI should calculate the weighted net JTD by multiplying each net JTD with the corresponding default risk weight in accordance with its credit quality as follows:

Credit quality category Default risk weight

AAA 0.5%

AA 2%

A 3%

BBB 6%

BB 15%

B 30%

CCC 50%

Unrated 15%

Defaulted 100%

Table 14 233 An AI should calculate the total capital charge for default risk non-securitisation as a simple sum of the bucket-level capital charge, i.e. no hedging is recognised between different buckets of corporates, sovereigns as well as local governments and municipalities.

17.2 SA-DRC for Securitisations (Non-CTP)

Gross JTD risk amount

234 An AI should follow the same approach as described for non-securitisations in order to compute the gross JTD risk amounts for securitisations (non-CTP), except that an LGD ratio is not applied to the exposure. The reason for this is that the LGD is already included in the default risk weights for securitisations to be applied to the securitisation exposure.

235 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 used in this way, they should be removed from the non-securitisation default risk treatment.

Net JTD risk amount

236 Offsetting should be limited to securitisation exposures with the same underlying asset pool and belonging to the same tranche, unless otherwise specified in paragraphs 235 and 238. This means that:

 no offsetting is permitted across securitisation exposures with different underlying securitised portfolio (i.e. underlying asset pools), even if the attachment and detachment points are the same; and

 no offsetting is permitted across securitisation exposures arising from different tranches with the same securitised portfolio.

237 Securitisation exposures that are otherwise identical except for maturity may be offset, subject to the same restriction as for positions of less than one year described in paragraphs 226 and 228 for non-securitisation.

238 Offsetting within a specific securitisation exposure is allowed as follows.

 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.

 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 replicated securitisation exposures.

 After the decomposition, the offsetting rules would apply as in any other case.

As in the case of SA-DRC for non-securitisation, a long securitisation exposure means that the default of the underlying obligor in the securitisation leads to a loss for an AI while a short securitisation exposure means that the default of the underlying obligor in the securitisation leads to a gain for an AI.

SA-DRC

239 The weighted net JTD for default risk (securitisations: non-CTP) are allocated to the following buckets:

 One unique bucket for all corporates (excluding small and medium enterprises), regardless of their region; and

 Other 44 buckets are defined along the two dimensions asset class and region.

The 11 asset classes are asset-backed commercial Paper (ABCP), auto loans/leases, residential mortgage-backed securities (RMBS), credit cards,

commercial mortgage-backed securities (CMBS), collateralised loan obligations, CDO-squared, small and medium enterprises, student loans, other retail, other wholesale. The 4 regions are Asia, Europe, North America, and/or other regions.

240 In order to assign a securitisation exposure to a bucket, an AI should rely on a classification that is commonly used in the market for grouping securitisation exposures by type and region of underlying. The AI should assign each securitisation exposure to one and only one of the buckets above and it should assign all securitisations with the same type and region of underlying to the same bucket. Any securitisation exposure that an AI cannot assign to a type or region of underlying in this fashion should be assigned to the buckets other retail, other wholesale or other regions respectively.

241 Within buckets, the SA-DRC (securitisations: non-CTP) is determined in a similar approach to that for non-securitisation. The hedge benefit ratio HBR, as defined in paragraph 231, is applied to net short securitisation exposures in that bucket, and the capital charge is calculated as in paragraph 231.

242 For calculating the weighted net JTD, the risk weights of securitisation exposures are defined by tranche instead of credit quality.

243 The default risk weights for securitisation exposures are based on the risk weights in the corresponding treatment for the banking book, which is available in Part 7 of the BCR. To avoid double-counting 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 charge, a maturity of one year is assumed in the Securitisation Internal Ratings-Based Approach, the Securitisation External Ratings-Based Approach and the Securitisation Standardised Approach. Following the corresponding treatment in the banking book, the hierarchy of approaches in determining the risk weights should be applied at the tranche level. The SA capital charge for an individual cash securitisation position can be capped at the fair value of the transaction.

244 An AI should calculate the total SA-DRC (securitisations: non-CTP) as a simple sum of the bucket-level capital charge, i.e. no hedging recognised between different buckets.