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CRR – Retail – My bookmarks

4 September, 2015 at 11:33 pm Leave a comment

Article 123: Retail exposures – RW 75%

• Orientation criterion ─ The exposure is to an individual person or persons or to a small business;

• Product criterion ─ The exposure takes the form of any of the following: revolving
credits and lines of credit (including credit cards and overdrafts), personal term
loans and leases (e.g. instalment loans, auto loans and leases, student and
educational loans, personal finance) and small business facilities and commitments.

Securities (such as bonds and equities), whether listed or not, are specifically
excluded from this category. Mortgage loans are excluded to the extent that they
qualify for treatment as claims secured by residential property (see paragraph 72).

• Granularity criterion ─ The supervisor must be satisfied that the regulatory retail
portfolio is sufficiently diversified to a degree that reduces the risks in the portfolio,
warranting the 75% risk weight.

One way of achieving this may be to set a numerical limit that no aggregate exposure to one counterpart (28) can exceed 0.2% of the overall regulatory retail portfolio.

• Low value of individual exposures. The maximum aggregated retail exposure to one
counterpart cannot exceed an absolute threshold of €1 million.

http://www.basel-ii-accord.com/BaselText/Basel66to74.htm

Articles 124: Exposures secured by mortgages on immovable property

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Article 125: Exposures fully and completely secured by mortgages on residential property

(a) fully and completely secured by mortgages on residential property which is or shall be occupied or let by the owner, or the beneficial owner in the case of personal investment companies –> RW 35%

(b) exposures to a tenant under a property leasing transaction concerning residential property under which the institution is the lessor and the tenant has an option to purchase, shall be assigned a risk weight of 35 % provided that the exposure of the institution is fully and completely secured by its ownership of the property

Conditions:

(a) value of the property shall not materially depend upon the credit quality of the borrower

(b) risk of the borrower shall not materially depend upon the performance of the underlying property or project, but on the underlying capacity of the borrower to repay the debt from other sources

(c) requirements set out in Article 208 and the valuation rules set out in Article 229(1) are met

(d) unless otherwise determined under Article 124(2), the part of the loan to which the 35 % risk weight is assigned does not exceed 80 % of the market value of the property in question or 80 % of the mortgage lending value of the property in question in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions

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Article 126: Exposures fully and completely secured by mortgages on commercial immovable property

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Article 36: Deductions from Common Equity Tier 1 items

* Reply by EU to Comments by BIS: http://www.bis.org/bcbs/publ/d300.pdf

Second, the Assessment Team argues that mortgage loans cannot be subject to different capital requirements for the part up to a prudent loan-to-value ratio and the part beyond that ratio. We disagree with this view and maintain that it is not clearly supported by the Basel text. The Basel agreement merely requires that a preferential risk weight is allowed only for lending that is fully secured, subject to a substantial margin of additional security. This does not preclude that a part of a loan fulfils the requirement, while another part does not qualify as fully secured lending and is therefore subject to a higher risk weight. The amount of the loan that is fully secured is equally well protected in default by the collateral regardless of whether the loan as a whole exceeds the threshold for being fully secured.

* Note:

(1) Calculate “EAD effective” (= EAD – provision – FI)

(2) Split “EAD effective” into 2 parts:

EAD 1 = 80% * collateral market value –> 35%
EAD 2 = EAD effective – EAD 1 –> if EAD 2 <= 1 mil euro –> treat EAD 2 as RETAIL asset class –> 75%; else 100%

(3) Even in FSA, ND risk weight is used if higher than 35%

* Calculation of Exposure-weighted Average LGD

BS_TYPE: any one of the Balance Sheet types
– ASS: Asset
– COL: Collateral
– DAF: Bought future
– DAO: Bought option
– DBL: Bought credit derivative in banking book
– DBS: Sold credit derivative in banking book
– DLF: Sold future
– DLO: Sold option
– DTL: Bought credit derivative in trading book
– DTS: Sold credit derivative in trading book
– EXT: External deal
– GUA: Guarantee
– LIA: Liability
– OFB: Off balance
– REP: Exposure side of a repo
– SPT: Spot FOREX
– UCF: Facilities when the drawdowns are synthetized
– VIR: Virtual tranche (credit enhancement

Sub Method
Mandatory for Securitization, Equities and Specialized Lending
FOR SECURITIZATION:
STD: Standard
RBA: Rating Based Approach
IAA: Internal Assessment Approach
DED: Deduction approach
SFA: Supervisory Formula Approach

FOR EQUITIES:
SRW: Simple Risk Weight
PDA: PD/LGD approach
STD: Standard
VAR: Value at Risk

FOR SPECIALIZED LENDING:E17
A: PD approach
B: No SL preferential
C: Low maturity SL preferential
D: Always SL preferential

CRR

Off-balance sheet items

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