BIPRU 9.14 Recognition of credit risk mitigation on securitisation positions under the IRB approach

This section applies to credit risk mitigation in relation to a securitisation position for a firm calculating risk weighted exposure amounts using the IRB approach.

[Note: BCD Annex IX Part 4 point 37 (part)]

Where a firm uses the ratings based method to calculate the risk weighted exposure amounts of securitisation positions, the firm may recognise credit risk mitigation in accordance with BIPRU 9.14.4 R to BIPRU 9.14.6 R.

[Note: BCD Annex IX Part 4 point 51]

Where a firm uses the supervisory formula method to calculate the risk weighted exposure amounts of securitisation positions, the firm may recognise credit risk mitigation in accordance with BIPRU 9.14.4 R to BIPRU 9.14.5 R and BIPRU 9.14.7 R to BIPRU 9.14.13 R.

[Note: BCD Annex IX Part 4 point 54]

Eligible funded protection is limited to that which is eligible for the calculation of risk weighted exposure amounts under the standardised approach as laid down under BIPRU 5 and recognition is subject to compliance with the relevant minimum requirements as laid down under BIPRU 5.

[Note: BCD Annex IX Part 4 point 60]

Eligible unfunded credit protection and unfunded protection providers are limited to those which are eligible under BIPRU 5 (Credit risk mitigation) and BIPRU 4.10 (Credit risk mitigation under the IRB approach) and recognition is subject to compliance with the relevant minimum requirements laid down under those provisions.

[Note: BCD Annex IX Part 4 point 61]

Where risk weighted exposure amounts are calculated using the ratings based method, the exposure value and/or the risk weighted exposure amount for a securitisation position in respect of which credit protection has been obtained may be modified in accordance with the provisions of BIPRU 5 (Credit risk mitigation) as they apply for the calculation of risk weighted exposure amounts under the standardised approach set out in BIPRU 3.

[Note: BCD Annex IX Part 4 point 62]

BIPRU 9.14.8 RBIPRU 9.14.10 R apply where risk weighted exposure amounts are calculated using the supervisory formula method where there is full credit protection.

[Note: BCD Annex IX Part 4 point 63 (part)]

A firm must determine the effective risk weight of the position. It must do this by dividing the risk weighted exposure amount of the position by the exposure value of the position and multiplying the result by 100.

[Note: BCD Annex IX Part 4 point 63 (part)]

In the case of funded credit protection, the risk weighted exposure amount of the securitisation position must be calculated by multiplying the funded protection-adjusted exposure amount of the position (E*, as calculated under BIPRU 5.4.28 R (3), taking the amount of the securitisation position to be E) by the effective risk weight.

[Note: BCD Annex IX Part 4 point 64]

In the case of unfunded credit protection, the risk weighted exposure amount of the securitisation position must be calculated by multiplying G_A (the amount of the protection adjusted for any currency mismatch and maturity mismatch in accordance BIPRU 5.7.23 R (2)) by the risk weight of the protection provider; and adding this to the amount arrived at by multiplying the amount of the securitisation position minus G_A by the effective risk weight.

[Note: BCD Annex IX Part 4 point 65]

BIPRU 9.14.12 RBIPRU 9.14.13 R apply where risk weighted exposure amounts are calculated using the supervisory formula method where there is partial protection.

If the credit risk mitigation covers the first loss or losses on a proportional basis on the securitisation position, a firm may apply BIPRU 9.14.7 R to BIPRU 9.14.10 R.

[Note: BCD Annex IX Part 4 point 66]

In other cases the firm must treat the securitisation position as two or more positions with the uncovered portion being the position with the lower credit quality. For the purposes of calculating the risk weighted exposure amount for this position, the provisions in BIPRU 9.12.22 R to BIPRU 9.12.24 G apply subject to the modifications that T is adjusted to e* in the case of funded credit protection; and to T-g in the case of unfunded credit protection, where e* denotes the ratio of E* to the total notional amount of the underlying pool, where E* is the adjusted exposure amount of the securitisation position calculated in accordance with BIPRU 5.4.28 R (3) taking the amount of the securitisation position to be E; and g is the ratio of the nominal amount of credit protection (adjusted for any currency or maturity mismatch in accordance with the provisions of BIPRU 5 (Credit risk mitigation)) to the sum of the exposure amounts of the securitised exposures. In the case of unfunded credit protection the risk weight of the protection provider must be applied to that portion of the position not falling within the adjusted value of T.

[Note: BCD Annex IX Part 4 point 67]