BIPRU 9.11 Calculation of risk weighted exposure amounts under the standardised approach to securitisations

Subject to BIPRU 9.11.5 R, the risk weighted exposure amount of a rated securitisation position must be calculated by applying to the exposure value the risk weight associated with the credit quality step with which the credit assessment has been determined to be associated, as prescribed in BIPRU 9.11.2 R or BIPRU 9.11.3 R.

[Note: BCD Annex IX Part 4 point 6]

Subject to BIPRU 9.11.6 RBIPRU 9.11.12 R, the risk weighted exposure amount of an unrated securitisation position must be calculated by applying a risk weight of 1250%.

[Note: BCD Annex IX Part 4 point 7]

For an originator or sponsor, the risk weighted exposure amounts calculated in respect of its positions in a securitisation may be limited to the risk weighted exposure amounts which would be calculated for the securitised exposures had they not been securitised subject to the presumed application of a 150% risk weight to all past due items and items belonging to regulatory high risk categories (see BIPRU 3.4.104 R and BIPRU 3 Annex 3 R) amongst the securitised exposures.

[Note: BCD Annex IX Part 4 point 8]

1. (1)

   A firm having an unrated securitisation position may apply the treatment set out in this paragraph for calculating the risk weighted exposure amount for that position provided the composition of the pool of exposures securitised is known at all times.

2. (2)

   A firm may apply the weighted-average risk weight that would be applied to the securitised exposures referred to in (1) under the standardised approach by a firm holding the exposures multiplied by a concentration ratio.

3. (3)

   This concentration ratio is equal to the sum of the nominal amounts of all the tranches divided by the sum of the nominal amounts of the tranches junior to, or pari passu with, the tranche in which the position is held including that tranche itself.

4. (4)

   The resulting risk weight must not be higher than 1250% or lower than any risk weight applicable to a rated more senior tranche.

5. (5)

   Where the firm is unable to determine the risk weights that would be applied to the securitised exposures under the standardised approach, it must apply a risk weight of 1250% to the position.

   [Note: BCD Annex IX Part 4 points 9 and 10]

Subject to the availability of a more favourable treatment by virtue of the provisions concerning liquidity facilities in BIPRU 9.11.10 RBIPRU 9.11.12 R, a firm may apply to securitisation positions meeting the conditions set out in BIPRU 9.11.9 R a risk weight that is the greater of:

1. (1)

   100%, or

2. (2)

   the highest of the risk weights that would be applied to any of the securitised exposures under the standardised approach by a firm holding the exposures.

   [Note: BCD Annex IX Part 4 point 11]

For the treatment in BIPRU 9.11.8 R to be available,:

1. (1)

   the securitisation position must be in an ABCP programme;

2. (2)

   the securitisation position must be in a tranche which is economically in a second loss position or better in the securitisation and the first loss tranche must provide meaningful credit enhancement to the second loss tranche;

3. (3)

   the securitisation position must be of a quality the equivalent of investment grade or better; and

4. (4)

   the firm in question must not hold a position in the first loss tranche.

   [Note: BCD Annex IX Part 4 point 12]

When the conditions in this paragraph have been met, and in order to determine its exposure value, a conversion figure of 20% may be applied to the nominal amount of a liquidity facility with an original maturity of one year or less and a conversion figure of 50% may be applied to the nominal amount of a liquidity facility with an original maturity of more than one year. The risk weight to be applied is the highest risk weight that would be applied to any of the securitised exposures under the standardised approach by a firm holding the exposures. Those conditions are as follows:

1. (1)

   the liquidity facility documentation must clearly identify and limit the circumstances under which the facility may be drawn;

2. (2)

   it must not be possible for the facility to be drawn so as to provide credit support by covering losses already incurred at the time of draw for example, by providing liquidity in respect of exposures in default at the time of draw or by acquiring assets at more than fair value;

3. (3)

   the facility must not be used to provide permanent or regular funding for the securitisation;

4. (4)

   repayment of draws on the facility must not be subordinated to the claims of investors other than to claims arising in respect of interest rate or currency derivative contracts, fees or other such payments, nor be subject to waiver or deferral;

5. (5)

   it must not be possible for the facility to be drawn after all applicable credit enhancements from which the liquidity facility would benefit are exhausted; and

6. (6)

   the facility must include a provision that results in an automatic reduction in the amount that can be drawn by the amount of exposures that are in default, where default has the meaning given to it for the purposes of the IRB approach, or where the pool of securitised exposures consists of rated instruments, that terminates the facility if the average quality of the pool falls below investment grade.

   [Note: BCD Annex IX Part 4 point 13]

To determine its exposure value a conversion figure of 0% may be applied to the nominal amount of a liquidity facility that may be drawn only in the event of a general market disruption (i.e. where more than one SSPE across different transactions are unable to roll over maturing commercial paper and that inability is not the result of an impairment of the SSPE's credit quality or of the credit quality of the securitised exposures), provided that the conditions set out in BIPRU 9.11.10 R are satisfied.

[Note: BCD Annex IX Part 4 point 14]

To determine its exposure value, a conversion figure of 0% may be applied to the nominal amount of a liquidity facility that is unconditionally cancellable provided that the conditions set out at BIPRU 9.11.10 R are satisfied and that repayment of draws on the facility are senior to any other claims on the cash flows arising from the securitised exposures.

[Note: BCD Annex IX Part 4 point 15]

Where a firm calculates the risk weighted exposure amount of a securitisation position under the standardised approach, where credit protection is obtained on a securitisation position, the calculation of risk weighted exposure amounts may be modified in accordance with BIPRU 5 (Credit risk mitigation).

[Note: BCD Annex IX Part 4 point 34]