Related provisions for IFPRU 9.1.2

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BIPRU 3.4.1RRP
Without prejudice to BIPRU 3.4.2 R to BIPRU 3.4.9 R, exposures to central governments and central banks must be assigned a 100% risk weight.[Note: BCD Annex VI Part 1 point 1]
BIPRU 3.4.2RRP
Subject to BIPRU 3.4.4 R, exposures to central governments and central banks for which a credit assessment by a nominated ECAI is available must be assigned a risk weight according to the table in BIPRU 3.4.3 R in accordance with the assignment by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 of the credit assessments of eligible ECAIs to six steps in a credit quality assessment scale.[Note: BCD Annex VI Part 1 point 2]
BIPRU 3.4.4RRP
Exposures to the European Central Bank must be assigned a 0% risk weight.[Note: BCD Annex VI Part 1 point 3]
BIPRU 3.4.5RRP
Exposures to EEA States' central governments and central banks denominated and funded in the domestic currency of that central government and central bank must be assigned a risk weight of 0%.[Note: BCD Annex VI Part 1 point 4]
BIPRU 3.4.6RRP
When the competent authorities of a third country which apply supervisory and regulatory arrangements at least equivalent to those applied in the EEA assign a risk weight which is lower than that indicated in BIPRU 3.4.1 R to BIPRU 3.4.3 R to exposures to their central government and central bank denominated and funded in the domestic currency, a firm may risk weight such exposures in the same manner.[Note: BCD Annex VI Part 1 point 5]
BIPRU 3.4.7RRP
An export credit agency credit assessment may be recognised by a firm for the purpose of determining the risk weight to be applied to an exposure under the standardised approach if either of the following conditions is met:(1) the credit assessment is a consensus risk score from export credit agencies participating in the OECD "Arrangement on Guidelines for Officially Supported Export Credits"; or(2) the export credit agency publishes its credit assessments, and the export credit
BIPRU 3.4.8RRP
Exposures for which a credit assessment by an export credit agency is recognised for risk weighting purposes must be assigned a risk weight according to the table in BIPRU 3.4.9 R.[Note: BCD Annex VI Part 1 point 7]
BIPRU 3.4.9RRP
This table belongs to BIPRU 3.4.8 R.MEIP01234567Risk weight0%0%20%50%100%100%100%150%
BIPRU 3.4.10RRP
Without prejudice to BIPRU 3.4.15 R to BIPRU 3.4.19 R:(1) a firm must risk weightexposures to regional governments and local authorities in accordance with BIPRU 3.4.11 R to BIPRU 3.4.14 R and BIPRU 3.4.19A R; and8(2) the preferential treatment for short-term exposures specified in BIPRU 3.4.37 R, BIPRU 3.4.39 R and BIPRU 3.4.44 R must not be applied.[Note: BCD Annex VI Part 1 point 8]
BIPRU 3.4.11RRP
(1) Exposures to regional governments and local authorities must be assigned a risk weight according to the credit quality step to which exposures to the central government of the jurisdiction in which the regional government or local authority is established are assigned in accordance with the table in BIPRU 3.4.12 R.(2) Exposures to an unrated regional government or local authority must not be assigned a risk weight lower than that applied to exposures to its central government.[Note:
BIPRU 3.4.12RRP
This table belongs to BIPRU 3.4.11 R.Credit quality step to which central government is assigned123456Risk weight of exposure20%50%100%100%100%150%
BIPRU 3.4.13RRP
For exposures to regional governments and local authorities established in countries where the central government is unrated, the risk weight must be not more than 100%.[Note: BCD Annex VI Part 1 point 27]
BIPRU 3.4.14RRP
For exposures to regional governments and local authorities with an original effective maturity of three months or less, the risk weight must be 20%.[Note: BCD Annex VI Part 1 point 28]
BIPRU 3.4.15RRP
A firm must treat an exposure to a regional government or local authority of the United Kingdom listed in BIPRU 3 Annex 2 R as an exposure to the central government of the United Kingdom.[Note: BCD Annex VI Part 1 point 9]
BIPRU 3.4.16GRP
The appropriate regulator will include a regional government or local authority in the list in BIPRU 3 Annex 2 R where there is no difference in risk between exposures to that body and exposures to the central government of the United Kingdom because of the specific revenue-raising powers of the regional government or local authority, and the existence of specific institutional arrangements the effect of which is to reduce the risk of default.[Note: BCD Annex VI Part 1 point
BIPRU 3.4.17RRP
A firm must treat an exposure to a regional government or local authority of an EEA State other than the United Kingdom as an exposure to the central government in whose jurisdiction that regional government or local authority is established if that regional government or local authority is included on the list of regional governments and local authorities drawn up by the competent authority in that EEA State under a CRD implementation measure with respect to point 9 of Part 1
BIPRU 3.4.18RRP
Exposures to churches or religious communities constituted in the form of a legal person under public law must, in so far as they raise taxes in accordance with legislation conferring on them the right to do so, be treated as exposures to regional governments and local authorities, except that BIPRU 3.4.15 R and BIPRU 3.4.17 R do not apply.[Note: BCD Annex VI Part 1 point 10]
BIPRU 3.4.19RRP
When competent authorities of a third country jurisdiction which apply supervisory and regulatory arrangements at least equivalent to those applied in the EEA treat exposures to regional governments and local authorities as exposures to their central government, a firm may risk weightexposures to such regional governments and local authorities in the same manner.[Note: BCD Annex VI Part 1 point 11]
BIPRU 3.4.19ARRP
8Without prejudice to BIPRU 3.4.17 R to BIPRU 3.4.19 R, an exposure to a regional government or local authority of an EEA State denominated and funded in the domestic currency of that regional government or local authority must be assigned a risk weight of 20%.[Note:BCD Annex VI Part 2(b)]
BIPRU 3.4.21RRP
Without prejudice to BIPRU 3.4.22 R to BIPRU 3.4.26 R, exposures to administrative bodies and non-commercial undertakings must be assigned a 100% risk weight.[Note:BCD Annex VI Part 1 point 12]
BIPRU 3.4.22RRP
Without prejudice to BIPRU 3.4.23 R to BIPRU 3.4.26 R, exposures to public sector entities must be assigned a 100% risk weight.[Note: BCD Annex VI Part 1 point 13]
BIPRU 3.4.23RRP
A firm may treat an exposure to a public sector entity as an exposure to a regional government or local authority in accordance with BIPRU 3.4.11 R to BIPRU 3.4.14 R.[Note: BCD Annex VI Part 1 point 14]
BIPRU 3.4.24RRP
In exceptional circumstances a firm may treat an exposure to a public sector entity established in the United Kingdom as an exposure to the central government of the United Kingdom if there is no difference in risk between exposures to that body and exposures to the central government of the United Kingdom because of the existence of an appropriate guarantee by the central government.[Note: BCD Annex VI Part 1 point 15]
BIPRU 3.4.25RRP
Where a competent authority of another EEA State implements points 14 or 15 of Part 1 of Annex VI of the Banking Consolidation Directive by exercising the discretion to treat exposures to public sector entities as exposures to institutions or as exposures to the central government of the EEA State concerned, a firm may risk weightexposures to the relevant public sector entities in the same manner.[Note: BCD Annex VI Part 1 point 16]
BIPRU 3.4.26RRP
When competent authorities of a third country jurisdiction, which apply supervisory and regulatory arrangements at least equivalent to those applied in the EEA, treat exposures to public sector entities as exposures to institutions, a firm may risk weightexposures to the relevant public sector entities in the same manner.[Note: BCD Annex VI Part 1 point 17]
BIPRU 3.4.27RRP
Without prejudice to BIPRU 3.4.28 R to BIPRU 3.4.29 R:(1) a firm must treat exposures to multilateral development banks in the same manner as exposures to institutions in accordance with BIPRU 3.4.34 R to BIPRU 3.4.39 R (Exposures to institutions: credit assessment based method); and(2) the preferential treatment for short-term exposures specified in BIPRU 3.4.37 R, BIPRU 3.4.39 R and BIPRU 3.4.44 R must not be applied.[Note: BCD Annex VI Part 1 point 19]
BIPRU 3.4.28RRP
An exposure to a multilateral development bank listed in point (a)9 of the definition in the Glossary must be assigned a 0% risk weight.[Note: BCD Annex VI Part 1 point 20]9
BIPRU 3.4.29RRP
A risk weight of 20% must be assigned to the portion of unpaid capital subscribed to the European Investment Fund.[Note: BCD Annex VI Part 1 point 21]
BIPRU 3.4.30RRP
Exposures to the following international organisations must be assigned a 0% risk weight:(1) the EU;55(2) the International Monetary Fund; and(3) the Bank for International Settlements.[Note: BCD Annex VI Part 1 point 22]
BIPRU 3.4.32RRP
Without prejudice to BIPRU 3.4.33 R to BIPRU 3.4.47 R, exposures to financial institutions authorised and supervised by the competent authorities responsible for the authorisation and supervision of credit institutions and subject to prudential requirements equivalent to those applied to credit institutions must be risk weighted as exposures to institutions.[Note: BCD Annex VI Part 1 point 24]
BIPRU 3.4.33RRP
Exposures to an unrated institution must not be assigned a risk weight lower than that applied to exposures to its central government.[Note: BCD Annex VI Part 1 point 25]
BIPRU 3.4.34RRP
Exposures to institutions with a residual maturity of more than three months 6for which a credit assessment by a nominated ECAI is available must be assigned a risk weight according to the table in BIPRU 3.4.35 R in accordance with the assignment by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 of the credit assessments of eligible ECAIs to six steps in a credit quality assessment scale.[Note: BCD Annex VI Part 1 point 29]
BIPRU 3.4.36RRP
Without prejudice to BIPRU 3.4.33 R, exposures to unrated institutions must be assigned a risk weight of 50%.[Note: BCD Annex VI Part 1 point 30]
BIPRU 3.4.37RRP
Exposures to an institution with a residual maturity of three months or less 6for which a credit assessment by a nominated ECAI is available must be assigned a risk weight according to the table in BIPRU 3.4.38 R in accordance with the assignment by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 of the credit assessments of eligible ECAIs to six steps in a credit quality assessment scale.[Note: BCD Annex VI Part 1 point 31]
BIPRU 3.4.38RRP
This table belongs to BIPRU 3.4.37 R.Credit quality step123456Risk weight20%20%20%50%50%150%
BIPRU 3.4.39RRP
Without prejudice to BIPRU 3.4.33 R, exposures to unrated institutions having an original effective maturity of three months or less must be assigned a 20% risk weight[Note: BCD Annex VI Part 1 point 32]
BIPRU 3.4.40RRP
If there is no short-term credit assessment as set out in BIPRU 3.4.112 R, the general preferential treatment for short-term exposures as specified in BIPRU 3.4.37 R applies to all exposures to institutions of up to three months residual maturity.[Note: BCD Annex VI Part 1 point 34]
BIPRU 3.4.41RRP
If there is a short-term credit assessment as set out in BIPRU 3.4.112 R and such an assessment determines the application of a more favourable or identical risk weight than the use of the general preferential treatment for short-term exposures, as specified in BIPRU 3.4.37 R, then the short-term assessment and risk weighting specified in BIPRU 3.4.112 R must be used for that specific exposure only. Other short-term exposures must follow the general preferential treatment for
BIPRU 3.4.42RRP
If there is a short-term credit assessment as set out in BIPRU 3.4.112 R and such an assessment determines a less favourable risk weight than the use of the general preferential treatment for short-term exposures, as specified in BIPRU 3.4.37 R, then the general preferential treatment for short-term exposures must not be used and all unrated short-term claims must be assigned the same risk weight as that applied by the specific short-term assessment.[Note: BCD Annex VI Part 1
BIPRU 3.4.43GRP
2BIPRU 3 Annex 4 G2 contains a flow diagram guide to determining the risk weight to be applied to short-term exposures to institutions according to whether a short-term credit assessment is available.
BIPRU 3.4.44RRP
A firm may assign to an exposure to an institution formed under the law of the United Kingdom of a residual maturity of 3 months or less denominated and funded in pounds sterling a risk weight that is one category less favourable than the preferential risk weight, as described in BIPRU 3.4.5 R (Exposures in the national currency of the borrower), assigned to exposures to the central government of the United Kingdom.[Note: BCD Annex VI Part 1 point 37]
BIPRU 3.4.45RRP
(1) Where a competent authority of another EEA State implements point 37 of Part 1 of Annex VI of the Banking Consolidation Directive by exercising the discretion to allow the treatment in that point, a firm may assign to the relevant national currency exposures the risk weight permitted by that CRD implementation measure.(2) When the competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the EEA assigns
BIPRU 3.4.46RRP
No exposures of a residual maturity of 3 months or less denominated and funded in the national currency of the borrower may be assigned a risk weight less than 20%.[Note: BCD Annex VI Part 1 point 38]
BIPRU 3.4.47RRP
Investments in equity or regulatory capital instruments issued by institutions must be risk weighted at 100%, unless deducted from capital resources.[Note: BCD Annex VI Part 1 point 39]
BIPRU 3.4.48RRP
Where an exposure to an institution is in the form of minimum reserves required by the European Central Bank or by the central bank of an EEA State to be held by the firm, a firm may assign the risk weight that would be assigned to exposures to the central bank of the EEA State in question provided:(1) the reserves are held in accordance with Regulation (EC) No. 1745/2003 of the European Central Bank of 12 September 2003 or a subsequent replacement regulation or in accordance
BIPRU 3.4.50RRP
Exposures for which a credit assessment by a nominated ECAI is available must be assigned a risk weight according to the table in BIPRU 3.4.51 R in accordance with the assignment by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 of the credit assessments of eligible ECAIs to six steps in a credit quality assessment scale.[Note: BCD Annex VI Part 1 point 41]
BIPRU 3.4.52RRP
Unrated exposures must be assigned a 100% risk weight or the risk weight of its central government, whichever is the higher.[Note: BCD Annex VI Part 1 point 42]
BIPRU 3.4.53RRP
Exposures that comply with the criteria listed in BIPRU 3.2.10 R must be assigned a risk weight of 75%. However a firm may treat such an exposure under BIPRU 3.2.24 R (100% risk weight).[Note: BCD Annex VI Part 1 point 43]
BIPRU 3.4.55RRP
Without prejudice to BIPRU 3.4.56 R to BIPRU 3.4.94 R, exposures fully secured by real estate property must be assigned a risk weight of 100%.[Note: BCD Annex VI Part 1 point 44]
BIPRU 3.4.56RRP
Without prejudice to BIPRU 3.4.85 R, an exposure or any part of an exposure fully and completely secured, to the satisfaction of the firm, 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 must be assigned a risk weight of 35%.[Note: BCD Annex VI Part 1 point 45]
BIPRU 3.4.57RRP
Exposures fully and completely secured, to the satisfaction of the firm, by shares in Finnish residential housing companies, operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation, in respect of residential property which is or shall be occupied or let by the owner must be assigned a risk weight of 35%.[Note: BCD Annex VI Part 1 point 46]
BIPRU 3.4.58RRP
Without prejudice to BIPRU 3.4.85 R, an exposure or any part of an exposure to a tenant under a property leasing transaction concerning residential property under which the firm is the lessor and the tenant has an option to purchase, must be assigned a risk weight of 35% provided that the firm is satisfied that the exposure of the firm is fully and completely secured by its ownership of the property.[Note: BCD Annex VI Part 1 point 47]
BIPRU 3.4.60RRP
(1) In the exercise of its judgement for the purposes of BIPRU 3.4.56 R to BIPRU 3.4.58 R, a firm may be satisfied only if the conditions in (2) to (6) are met.(2) The value of the property does not materially depend upon the credit quality of the obligor. This requirement does not preclude situations where purely macroeconomic factors affect both the value of the property and the performance of the borrower.(3) The risk of the borrower does not materially depend upon the performance
BIPRU 3.4.61RRP
BIPRU 3.4.60 R (3) does not apply to exposures fully and completely secured by mortgages on residential property which is situated within the United Kingdom.[Note: BCD Annex VI Part 1 point 49]
BIPRU 3.4.62GRP
The Banking Consolidation Directive permits a competent authority to disapply the condition in BIPRU 3.4.60 R (3), if it has evidence that a well-developed and long-established residential real estate market is present in its territory with loss rates which are sufficiently low to justify such treatment. BIPRU 3.4.61 R implements that option. However, if the evidence changes so that these conditions are no longer satisfied, the appropriate regulator may be obliged to revoke BIPRU
BIPRU 3.4.63RRP
If a CRD implementation measure of another EEA State exercises the discretion in point 49 of Part 1 of Annex VI of the Banking Consolidation Directive to dispense with the condition corresponding to BIPRU 3.4.60 R (3) (The risk of the borrower should not materially depend upon the performance of the underlying property or project) , a firm may apply a risk weight of 35% to such exposures fully and completely secured by mortgages on residential property situated in that EEA State.[Note:
BIPRU 3.4.64RRP
The requirements about legal certainty referred to in BIPRU 3.4.60 R (4)(a) are as follows:(1) the mortgage or charge 3must be enforceable in all relevant jurisdictions which are relevant at the time of conclusion of the credit agreement, and the mortgage or charge 3must be properly filed on a timely basis;33(2) the arrangements must reflect a perfected lien (i.e. all legal requirements for establishing the pledge shall have been fulfilled); and(3) the protection agreement and
BIPRU 3.4.66RRP
(1) The requirements about monitoring of property values referred to in BIPRU 3.4.60 R (4)(b) are as follows:(a) the value of the property must be monitored on a frequent basis and at a minimum once every three years for residential real estate;(b) more frequent monitoring must be carried out where the market is subject to significant changes in conditions;(c) statistical methods may be used to monitor the value of the property and to identify property that needs revaluation;(d)
BIPRU 3.4.72RRP
The requirements about documentation referred to in BIPRU 3.4.60 R (4)(c) are that the types of residential real estate accepted by the firm and its lending policies in this regard must be clearly documented.[Note: BCD Annex VIII Part 2 point 8(c)]
BIPRU 3.4.73RRP
The requirements about insurance referred to in BIPRU 3.4.60 R (4)(d) are that the firm must have procedures to monitor that the property taken as protection is adequately insured against damage.[Note: BCD Annex VIII Part 2 point 8(d)]
BIPRU 3.4.77RRP
The property must be valued by an independent valuer at or less than the market value. In those EEA States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions the property may instead be valued by an independent valuer at or less than the mortgage lending value.[Note: BCD Annex VIII Part 3 point 62]
BIPRU 3.4.78RRP
Market value means the estimated amount for which the property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market value must be documented in a transparent and clear manner.[Note: BCD Annex VIII Part 3 point 63]
BIPRU 3.4.79RRP
Mortgage lending value means the value of the property as determined by a prudent assessment of the future marketability of the property taking into account long-term sustainable aspects of the property, the normal and local market conditions, the current use and alternative appropriate uses of the property. Speculative elements must not be taken into account in the assessment of the mortgage lending value. The mortgage lending value must be documented in a transparent and clear
BIPRU 3.4.80RRP
The value of the collateral must be the market value or mortgage lending value reduced as appropriate to reflect the results of the monitoring required under 2BIPRU 3.4.60 R (4)(b)2 and BIPRU 3.4.66 R and to take account of any prior claims on the property.[Note: BCD Annex VIII Part 3 point 65]
BIPRU 3.4.83RRP
A firm may only treat an exposure as fully and completely secured by residential property situated in another EEA State for the purposes of BIPRU 3.4.56 R or BIPRU 3.4.58 R if it would be treated as fully and completely secured by the relevant CRD implementation measures in that EEA State implementing points 45 and 47 of Part 1 of Annex VI of the Banking Consolidation Directive.
BIPRU 3.4.89RRP
Exposures or any part of an exposure secured by mortgages on offices or other commercial premises which cannot properly be considered to fall within any other standardised credit risk exposure class or to qualify for a lower risk weight under BIPRU 3 must be assigned a risk weight of 100%.[Note: BCD Annex VI Part 1 point 51]
BIPRU 3.4.90RRP
Exposures fully and completely secured by shares in Finnish housing companies, operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation, in respect of offices or other commercial premises may be assigned a risk weight of 50%.[Note: BCD Annex VI Part 1 point 52]
BIPRU 3.4.91RRP
If a CRD implementation measure in another EEA State implements the discretion in point 51 of Part 1 of Annex VI of the Banking Consolidation Directive, a firm may apply the same treatment as that CRD implementation measure to exposures falling within the scope of that CRD implementation measure which are fully and completely secured by mortgages on offices or other commercial premises situated in that EEA State.[Note: BCD Annex VI Part 1 points 51 and 57]
BIPRU 3.4.92RRP
If a CRD implementation measure in another EEA State implements the discretion in point 53 of Part 1 of Annex VI of the Banking Consolidation Directive, a firm may apply the same treatment as that CRD implementation measure to exposures related to property leasing transactions concerning offices or other commercial premises situated in that EEA State and governed by statutory provisions whereby the lessor retains full ownership of the rented assets until the tenant exercises his
BIPRU 3.4.93RRP
In particular, if a firm applies BIPRU 3.4.91 R or BIPRU 3.4.92 R, it must comply with the corresponding CRD implementation measures in relation to points 54-56 of Part 1 of Annex VI of the Banking Consolidation Directive.[Note: BCD Annex VI Part 1 points 54 to 56]
BIPRU 3.4.94RRP
(1) If a CRD implementation measure in another EEA State implements the discretion in point 58 of Part 1 of Annex VI of the Banking Consolidation Directive to dispense with the condition in point 54(b) for exposures fully and completely secured by mortgages on commercial property situated in that EEA State, a firm may apply the same treatment as that CRD implementation measure to exposures fully and completely secured by mortgages on commercial property situated in that EEA State
BIPRU 3.4.96RRP
Without prejudice to the provisions contained in BIPRU 3.4.97 R to BIPRU 3.4.101 R, the unsecured part of any item that is past due for more than 90 days (irrespective of the amount of that item or of the unsecured portion of that item) must be assigned a risk weight of:(1) 150% if value adjustments are less than 20% of the unsecured part of the exposure gross of value adjustments; and(2) 100% if value adjustments are no less than 20% of the unsecured part of the exposure gross
BIPRU 3.4.97RRP
For the purpose of defining the secured portion of the past due item, eligible collateral and guarantees must be those eligible for credit risk mitigation purposes under BIPRU 5.[Note: BCD Annex VI Part 1 point 62]
BIPRU 3.4.99RRP
Exposures indicated in BIPRU 3.4.56 R to BIPRU 3.4.63 R (Exposures secured by mortgages on residential property) must be assigned a risk weight of 100% net of value adjustments if they are past due for more than 90 days. If value adjustments are no less than 20% of the exposure gross of value adjustments, the risk weight to be assigned to the remainder of the exposure is 50%.[Note: BCD Annex VI Part 1 point 64]
BIPRU 3.4.101RRP
Exposures indicated in BIPRU 3.4.89 R to BIPRU 3.4.94 R (Exposures secured by mortgages on commercial real estate) must be assigned a risk weight of 100% if they are past due for more than 90 days.[Note: BCD Annex VI Part 1 point 65]
BIPRU 3.4.102RRP
Non past due items to be assigned a 150% risk weight under BIPRU 3.4 and for which value adjustments have been established may be assigned a risk weight of:(1) 100% if value adjustments are no less than 20% of the exposure value gross of value adjustments; and(2) 50%, if value adjustments are no less than 50% of the exposure value gross of value adjustments.[Note: BCD Annex VI Part 1 point 67]
BIPRU 3.4.104RRP
Exposures listed in BIPRU 3 Annex 3 R must be assigned a risk weight of 150%.[Note: BCD Annex VI Part 1 point 66]
BIPRU 3.4.105GRP
For the purposes of point 66 of Part 1 of Annex VI of the Banking Consolidation Directive, the exposures listed in BIPRU 3 Annex 3 R are in the view of the appropriate regulator associated with particularly high risk.
BIPRU 3.4.107RRP
(1) Covered bonds means covered bonds as defined in paragraph (1) of the definition in the glossary (Definition based on Article 22(4) of the UCITS Directive) and collateralised by any of the following eligible assets:(a) exposures to or guaranteed by central governments, central bank, public sector entities, regional governments and local authorities in the EEA;(b) (i) exposures to or guaranteed by non-EEA central governments, non-EEAcentral banks, multilateral development banks,
BIPRU 3.4.108RRP
A firm must for real estate collateralising covered bonds meet the minimum requirements set out in BIPRU 3.4.64 R to BIPRU 3.4.73 R and the valuation rules set out in BIPRU 3.4.77 R to BIPRU 3.4.80 R.[Note: BCD Annex VI Part 1 point 69]
BIPRU 3.4.109RRP
Notwithstanding BIPRU 3.4.107 R to BIPRU 3.4.108 R, covered bonds meeting the definition of Article 22(4) of the UCITS Directive and issued before 31 December 2007 are also eligible for the preferential treatment until their maturity.[Note: BCD Annex VI Part 1 point 70]
BIPRU 3.4.110RRP
Covered bonds must be assigned a risk weight on the basis of the risk weight assigned to senior unsecured exposures to the credit institution which issues them. The following correspondence between risk weights applies:(1) if the exposures to the institution are assigned a risk weight of 20%, the covered bond must be assigned a risk weight of 10%;(2) if the exposures to the institution are assigned a risk weight of 50%, the covered bond must be assigned a risk weight of 20%;(3)
BIPRU 3.4.111RRP
Risk weightedexposure amounts for securitisation positions must be determined in accordance with BIPRU 9.[Note: BCD Annex VI Part 1 point 72]
BIPRU 3.4.112RRP
Exposures to institutions where BIPRU 3.4.34 R to BIPRU 3.4.39 R apply, and exposures to corporates6 for which a short-term credit assessment by a nominated ECAI is available must be assigned a risk weight according to the table in BIPRU 3.4.113 R in accordance with the mapping by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 of the credit assessments of eligible ECAIs to six steps in a credit quality assessment scale.[Note: BCD Annex VI
BIPRU 3.4.115RRP
Without prejudice to BIPRU 3.4.116 R to BIPRU 3.4.125 R, exposures in CIUs must be assigned a risk weight of 100%.[Note: BCD Annex VI Part 1 point 74]
BIPRU 3.4.116RRP
Exposures in the form of CIUs for which a credit assessment by a nominated ECAI is available must be assigned a risk weight according to the table in BIPRU 3.4.117 R in accordance with the assignment by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 of the credit assessments of eligible ECAIs to six steps in a credit quality assessment scale.[Note: BCD Annex VI Part 1 point 75]
BIPRU 3.4.118RRP
Where a firm considers that a position in a CIU is associated with particularly high risks it must assign that position a risk weight of 150%.[Note: BCD Annex VI Part 1 point 76]
BIPRU 3.4.121RRP
Where BIPRU 3.4.116 R does not apply, a firm may determine the risk weight for a CIU as set out in BIPRU 3.4.123 R to BIPRU 3.4.125 R, if the following eligibility criteria are met:(1) one of the following conditions is satisfied:(a) the CIU is managed by a company which is subject to supervision in an EEA State; or(b) the following conditions are satisfied:(i) the CIU is managed by a company which is subject to supervision that is equivalent to that laid down in EU5 law; and5(ii)
BIPRU 3.4.122RRP
If another EEA competent authority approves a third country CIU as eligible under a CRD implementation measure with respect to point 77(a) of Part 1 of Annex VI of the Banking Consolidation Directive then a firm may make use of this recognition.[Note: BCD Annex VI Part 1 point 78]
BIPRU 3.4.123RRP
Where a firm is aware of the underlying exposures of a CIU, it may look through to those underlying exposures in order to calculate an average risk weight for the CIU in accordance with the standardised approach.[Note: BCD Annex VI Part 1 point 79]
BIPRU 3.4.124RRP
Where a firm is not aware of the underlying exposures of a CIU, it may calculate an average risk weight for the CIU in accordance with the standardised approach subject to the following rules: it will be assumed that the CIU first invests, to the maximum extent allowed under its mandate, in the standardised credit risk exposure classes attracting the highest capital requirement, and then continues making investments in descending order until the maximum total investment limit
BIPRU 3.4.125RRP
A firm may rely on a third party to calculate and report, in accordance with the methods set out in BIPRU 3.4.123 R to BIPRU 3.4.124 R, a risk weight for the CIU provided that the correctness of the calculation and report is adequately ensured.[Note: BCD Annex VI Part 1 point 81]
BIPRU 3.4.127RRP
Tangible assets within the meaning of Article 4(10) of the Bank Accounts Directive must be assigned a risk weight of 100%.[Note: BCD Annex VI Part 1 point 82]
BIPRU 3.4.128RRP
Prepayments and accrued income for which a firm is unable to determine the counterparty in accordance with the Bank Accounts Directive, must be assigned a risk weight of 100%.[Note: BCD Annex VI Part 1 point 83]
BIPRU 3.4.129RRP
Cash items in the process of collection must be assigned a 20% risk weight. Cash in hand and equivalent cash items must be assigned a 0% risk weight.[Note: BCD Annex VI Part 1 point 84]
BIPRU 3.4.130RRP
Holdings of equity and other participations except where deducted from capital resources must be assigned a risk weight of at least 100%.[Note: BCD Annex VI Part 1 point 86]
BIPRU 3.4.131RRP
Gold bullion held in own vaults or on an allocated basis to the extent backed by bullion liabilities must be assigned a 0% risk weight.[Note: BCD Annex VI Part 1 point 87]
BIPRU 3.4.132RRP
In the case of asset sale and repurchase agreements and outright forward purchases, the risk weight must be that assigned to the assets in question and not to the counterparties to the transactions.[Note: BCD Annex VI Part 1 point 88]
BIPRU 3.4.133RRP
Where a firm provides credit protection for a number of exposures under terms that the nth default among the exposures triggers payment and that this credit event terminates the contract, and where the product has an external credit assessment from an eligible ECAI the risk weights prescribed in BIPRU 9 must be assigned. If the product is not rated by an eligible ECAI, the risk weights of the exposures included in the basket must be aggregated, excluding n-1 exposures, up to a
BIPRU 3.4.134RRP
The exposure value for leases must be the discounted minimum lease payments. Minimum lease payments are the payments over the lease term that the lessee is or can be required to make and any bargain option (i.e. an option the exercise of which is reasonably certain). Any guaranteed residual value fulfilling the set of conditions in BIPRU 5.7.1 R (Eligibility), regarding the eligibility of protection providers as well as the minimum requirements for recognising other types of guarantees
BIPRU 4.3.2RRP
Each exposure must be assigned to one of the following exposure classes:(1) claims or contingent claims on central governments and central banks;(2) claims or contingent claims on institutions;(3) claims or contingent claims on corporates;(4) retail claims or contingent retail claims;(5) equity claims;(6) securitisation positions; and(7) non credit-obligation assets.[Note: BCD Article 86(1)]
BIPRU 4.3.3RRP
The methodology used by a firm for assigning exposures to different IRB exposure classes must be appropriate and consistent over time.[Note: BCD Article 86(9)]
BIPRU 4.3.4RRP
The risk weighted exposure amounts for credit risk for exposures belonging to one of the exposure classes referred to in (1) to (4) must, unless deducted from capital resources, be calculated in accordance with the following provisions:(1) for exposures in the sovereign, institution and corporate IRB exposure class, BIPRU 4.4.57 R to BIPRU 4.4.60 R, BIPRU 4.4.79 R, BIPRU 4.5.8 R to BIPRU 4.5.10 R (for specialised lending exposures), BIPRU 4.9.3 R and BIPRU 4.8.16 R to BIPRU 4.8.17
BIPRU 4.3.5RRP
The calculation of risk weighted exposure amounts for credit risk and dilution risk must be based on the relevant parameters associated with the exposure in question. These include probability of default (PD), loss given default (LGD), maturity (M) and the exposure value of the exposure. PD and LGD may be considered separately or jointly, in accordance with the provisions relating to PD and LGD in BIPRU 4.4, BIPRU 4.6, BIPRU 4.7 and BIPRU 4.8 at:(1) for exposures in the sovereign,
BIPRU 4.3.6RRP
The expected loss amounts for exposures belonging to one of the IRB exposure classes referred to in (1) to (3) must be calculated in accordance with the methods set out in the following provisions:(1) for exposures in the sovereign, institution and corporate IRB exposure class, BIPRU 4.4.61 R to BIPRU 4.4.62 R and (for specialised lending exposures) BIPRU 4.5.13 R to BIPRU 4.5.15R;(2) for exposures in the retail exposure class, BIPRU 4.6.47 R to BIPRU 4.6.48 R;(3) for exposures
BIPRU 4.3.7RRP
The calculation of expected loss amounts in accordance with BIPRU 4.3.6 R must be based on the same input figures of PD, LGD and the exposure value for each exposure as being used for the calculation of risk weighted exposure amounts in accordance with BIPRU 4. For defaultedexposures,where a firm uses its own estimate of LGDs, EL must be the firm's best estimate of expected loss (ELBE), for the defaultedexposure in accordance with BIPRU 4.3.122 R.[Note:BCD Article 88(2)]
BIPRU 4.3.8RRP
The expected loss amounts calculated in accordance with BIPRU 4.3.6 R (1), BIPRU 4.3.6 R (2) and BIPRU 4.3.6 R (4) must be subtracted from the sum of value adjustments and provisions related to these exposures. Discounts on balance sheet exposures purchased when in default according to BIPRU 4.4.71 R must be treated in the same manner as value adjustments. Expected loss amounts for securitised exposures and value adjustments and provisions related to these exposures must not be
BIPRU 4.3.9RRP
All material aspects of the rating and estimation processes must be approved by the firm'sgoverning body or a designated committee thereof and senior management. These parties must possess a general understanding of the firm'srating systems and detailed comprehension of its associated management reports.[Note: BCD Annex VII Part 4 point 124]
BIPRU 4.3.11RRP
Senior management must provide notice to the governing body or a designated committee thereof of material changes or exceptions from established policies that will materially impact the operations of the firm'srating systems.[Note:BCD Annex VII Part 4 point 125]
BIPRU 4.3.13RRP
Senior management must have a good understanding of the rating system's designs and operations. Senior management must ensure on an ongoing basis that the rating systems are operating properly. Senior management must be regularly informed by the credit risk control units about the performance of the rating process, areas needing improvement, and the status of efforts to improve previously identified deficiencies.[Note:BCD Annex VII Part 4 point 126]
BIPRU 4.3.14RRP
Internal ratings-based analysis of the firm's credit risk profile must be an essential part of the management reporting required under BIPRU 4.3.9 R, BIPRU 4.3.11 R and BIPRU 4.3.13 R. Reporting must include at least risk profile by grade, migration across grades, estimation of the relevant parameters per grade, and comparison of realised default rates and, to the extent that own estimates are used, of realised LGDs and realised conversion factors against expectations and stress-test
BIPRU 4.3.15RRP
The credit risk control unit must be independent from the personnel and management functions responsible for originating or renewing exposures and report directly to senior management. The unit must be responsible for the design or selection, implementation, oversight and performance of the rating systems. It must regularly produce and analyse reports on the output of the rating systems.[Note:BCD Annex VII Part 4 point 128]
BIPRU 4.3.16RRP
The areas of responsibility for the credit risk control unit(s) must include the following:(1) testing and monitoring grades and pools;(2) production and analysis of summary reports from the firm'srating systems;(3) implementing procedures to verify that grade and pool definitions are consistently applied across departments and geographic areas;(4) reviewing and documenting any changes to the rating process, including the reasons for the changes;(5) reviewing the rating criteria
BIPRU 4.3.17RRP
Notwithstanding BIPRU 4.3.16 R, a firm using pooled data according to BIPRU 4.3.92 R - BIPRU 4.3.94 R (Overall requirements for estimation) may outsource the following tasks:(1) production of information relevant to testing and monitoring grades and pools;(2) production of summary reports from the firm'srating systems;(3) production of information relevant to review of the rating criteria to evaluate if they remain predictive of risk;(4) documentation of changes to the rating
BIPRU 4.3.18RRP
A firm making use of BIPRU 4.3.17 R must ensure that the appropriate regulator has access to all relevant information from the third party that is necessary for examining compliance with the minimum IRB standards and the firm'sIRB permission and that the appropriate regulator may perform on-site examinations to the same extent as within the firm.[Note:BCD Annex VII Part 4 point 130 (part)]
BIPRU 4.3.19RRP
A firm must document the design and operational details of its rating systems. The documentation must evidence compliance with the minimum IRB standards and the firm'sIRB permission, and address topics including portfolio differentiation, rating criteria, responsibilities of parties that rate obligors and exposures, frequency of assignment reviews, and management oversight of the rating process.[Note:BCD Annex VII Part 4 point 31]
BIPRU 4.3.22RRP
A firm must document the specific definitions of default and loss used internally and demonstrate consistency with the definitions of default and loss set out in the glossary and BIPRU 4.[Note:BCD Annex VII Part 4 point 33]
BIPRU 4.3.24RRP
Where a firm employs statistical models in the rating process, the firm must document its methodologies. This material must:(1) provide a detailed outline of the theory, assumptions and/or mathematical and empirical basis of the assignment of estimates to grades, individual obligors, exposures, or pools, and the data source(s) used to estimate the model;(2) establish a rigorous statistical process (including out-of-time and out-of-sample performance tests) for validating the model;
BIPRU 4.3.25RRP
A rating system comprises all of the methods, processes, controls, data collection and IT systems that support the assessment of credit risk, the assignment of exposures to grades or pools (rating), and the quantification of default and loss estimates for a certain type of exposure.[Note:BCD Annex VII Part 4 point 1]
BIPRU 4.3.26RRP
If a firm uses multiple rating systems, the rationale for assigning an obligor or a transaction to a rating system must be documented and applied in a manner that appropriately reflects the level of risk.[Note:BCD Annex VII Part 4 point 2]
BIPRU 4.3.27RRP
Assignment criteria and processes must be periodically reviewed to determine whether they remain appropriate for the current portfolio and external conditions.[Note:BCD Annex VII Part 4 point 3]
BIPRU 4.3.28RRP
Where a firm uses direct estimates of risk parameters these may be seen as the outputs of grades on a continuous rating scale.[Note:BCD Annex VII Part 4 point 4]
BIPRU 4.3.29RRP
A firm must have robust systems in place to validate the accuracy and consistency of rating systems, processes, and the estimation of all relevant risk parameters (PD, LGD, conversion factors and EL). A firm must be able to demonstrate to the appropriate regulator that the internal validation process enables it to assess the performance of internal rating and risk estimation systems consistently and meaningfully.[Note:BCD Annex VII Part 4 point 110]
BIPRU 4.3.33RRP
A firm must regularly compare realised default rates with estimated PDs for each grade and where realised default rates are outside the expected range for that grade a firm must specifically analyse the reasons for the deviation. A firm3using its own estimates of LGDs and/or conversion factors must also perform analogous analysis for own estimates of LGDs and conversion factors. Such comparisons must make use of historical data that cover as long a period as possible. A firm must
BIPRU 4.3.35RRP
A firm must also use other appropriate quantitative validation tools and comparisons with relevant external data sources. The analysis must be based on data that is appropriate to the portfolio, is updated regularly, and covers a relevant observation period. A firm's internal assessments of the performance of its rating systems must be based on as long a period as possible.[Note:BCD Annex VII Part 4 point 112]
BIPRU 4.3.36RRP
The methods and data used for quantitative validation must be consistent through time. Changes in estimation and validation methods and data (both data sources and periods covered) must be documented.[Note:BCD Annex VII Part 4 point 113
BIPRU 4.3.37RRP
A firm must have sound internal standards for situations where deviations in realised PDs, LGDs, conversion factors and, where EL is used, total losses, from expectations become significant enough to call the validity of the estimates into question. These standards must take account of business cycles and similar systematic variability in default and loss experience. Where realised values continue to be higher than expected values, a firm must revise estimates upward to reflect
BIPRU 4.3.38RRP
Internal audit or another comparable independent auditing unit must review at least annually the firm'srating systems and its operations, including the operations of the firm and the estimation of PDs, LGDs, ELs and conversion factors. Areas of review must include adherence to all applicable minimum requirements.[Note:BCD Annex VII Part 4 point 131]
BIPRU 4.3.39RRP
A firm must have in place sound stress testing processes for use in the assessment of its capital adequacy. Stress testing must involve identifying possible events or future changes in economic conditions that could have unfavourable effects on the firm's credit exposures and assessment of the firm's ability to withstand such changes.[Note:BCD Annex VII Part 4 point 40]
BIPRU 4.3.40RRP
(1) A firm must regularly perform a credit risk stress test to assess the effect of certain specific conditions on its total capital requirements for credit risk. The test to be employed must be one chosen by the firm. The test to be employed must be meaningful and reasonably conservative. Stressed portfolios must contain the vast majority of a firm's total exposures covered by the IRB approach.(2) The stress test must be designed to assess the firm's ability to meet its capital
BIPRU 4.3.43RRP
A firm must have specific definitions, processes and criteria for assigning exposures to grades or pools within a rating system.[Note:BCD Annex VII Part 4 point 17 (part)]
BIPRU 4.3.44RRP
The grade or pool definitions and criteria must be sufficiently detailed to allow those charged with assigning ratings consistently to assign obligors or facilities posing similar risk to the same grade or pool. This consistency must exist across lines of business, departments and geographic locations within each rating system.[Note:BCD Annex VII Part 4 point 17 (part)]
BIPRU 4.3.46RRP
The documentation of the rating process must allow third parties to understand the assignments of exposures to grades or pools, to replicate grade and pool assignments and to evaluate the appropriateness of the assignments to a grade or a pool.[Note:BCD Annex VII Part 4 point 17 (part)]
BIPRU 4.3.47RRP
The criteria referred to in BIPRU 4.3.43 R must also be consistent with the firm's internal lending standards and its policies for handling troubled obligors and facilities.[Note:BCD Annex VII Part 4 point 17 (part)]
BIPRU 4.3.48RRP
A firm must take all relevant information into account in assigning obligors and facilities to grades or pools. Information must be current and must enable the firm to forecast the future performance of the exposure. The less information a firm has, the more conservative must be its assignments of exposures to obligor and facility grades or pools. If a firm uses an external rating as a primary factor determining an internal rating assignment, the firm must ensure that it considers
BIPRU 4.3.50RRP
For grade and pool assignments a firm must document the situations in which human judgement may override the inputs or outputs of the assignment process and the personnel responsible for approving these overrides. A firm must document these overrides and the personnel responsible. A firm must analyse the performance of the exposures whose assignments have been overridden. This analysis must include assessment of the performance of exposures whose rating has been overridden by
BIPRU 4.3.51RRP
(1) This paragraph applies to the use of statistical models and/or other mechanical methods to assign exposures to obligor grades, obligor pools, facility grades or facility pools.(2) A firm must be able to demonstrate to the appropriate regulator that the model has good predictive power and that capital requirements are not distorted as a result of its use.(3) The input variables to the model must form a reasonable and effective basis for the resulting predictions. The model
BIPRU 4.3.54RRP
A firm must collect and store data on aspects of its internal ratings as required under BIPRU 11 (Disclosure).[Note:BCD Annex VII Part 4 point 36]
BIPRU 4.3.56RRP
A default must be considered to have occurred with regard to a particular obligor when either or both of the two following events has taken place:(1) the firm considers that the obligor is unlikely to pay its credit obligations to the firm, the parent undertaking or any of its subsidiary undertakings in full, without recourse by the firm to actions such as realising security (if held); and(2) the obligor is past due more than 90 days on any material credit obligation to the firm,
BIPRU 4.3.57RRP
The following provisions also apply with respect to the definition of default:(1) for overdrafts, days past due commence once an obligor has breached an advised limit, has been advised a limit smaller than current outstandings, or has drawn credit without authorisation and the underlying amount is material;(2) an advised limit means a limit which has been brought to the knowledge of the obligor;(3) days past due for credit cards commence on the minimum payment due date;(4) in
BIPRU 4.3.63RRP
(1) Elements to be taken as indications of unlikeliness to pay must include the items set out in this rule.(2) The firm putting the credit obligation on non-accrued status must be taken as an indication of unlikeliness to pay.(3) The firm making a value adjustment resulting from a significant perceived decline in credit quality subsequent to the firm taking on the exposure must be taken as an indication of unlikeliness to pay.(4) The firm selling the credit obligation at a material
BIPRU 4.3.70RRP
A firm must (if it uses external data that is not itself consistent with the definition of default) be able to demonstrate to the appropriate regulator that appropriate adjustments have been made that achieve broad equivalence with the definition of default.[Note:BCD Annex VII Part 4 point 46]
BIPRU 4.3.71RRP
If a firm considers that a previously defaultedexposure is such that no trigger of default continues to apply, the firm must rate the obligor or facility as it would for a non-defaultedexposure. Should the definition of default subsequently be triggered, another default must be deemed to have occurred.[Note:BCD Annex VII Part 4 point 47]
BIPRU 4.3.73RRP
BIPRU 4.3.74 R to BIPRU 4.3.131 R apply to a firm's own estimates of risk parameters used in the IRB approach.[Note:BCD Annex VII Part 4 point 43]
BIPRU 4.3.74RRP
A firm's own estimates of the risk parameters PD, LGD, conversion factor and EL must incorporate all relevant data, information and methods. The estimates must be derived using both historical experience and empirical evidence, and must not be based purely on judgemental considerations. The estimates must be plausible and intuitive and must be based on the material drivers of the respective risk parameters. The less data a firm has, the more conservative it must be in its estimation.[Note:BCD
BIPRU 4.3.83RRP
A firm must be able to provide a breakdown of its loss experience in terms of default frequency, LGD, conversion factor, or loss where EL estimates are used, by the factors it sees as the drivers of the respective risk parameters. A firm must be able to demonstrate to the appropriate regulator that its estimates are representative of long-run experience.[Note:BCD Annex VII Part 4 point 50]
BIPRU 4.3.84RRP
Any changes in lending practice or the process for pursuing recoveries over the observation periods referred to in BIPRU 4.4.31 R (Observation period for sovereigns, institutions and corporates for PDs), BIPRU 4.6.28 R (Observation period for retail exposures for PDs), BIPRU 4.4.54 R (Observation period for sovereigns, institutions and corporates for LGDs), BIPRU 4.6.33 R (Observation period for retail exposures for LGDs), BIPRU 4.4.55 R (Observation period for sovereigns, institutions
BIPRU 4.3.85RRP
The population of exposures represented in the data used for estimation, the lending standards used when the data was generated and other relevant characteristics must be comparable with those of a firm'sexposures and standards. A firm must also be able to demonstrate to the appropriate regulator that the economic or market conditions that underlie the data are relevant to current and foreseeable conditions. The number of exposures in the sample and the data period used for quantification
BIPRU 4.3.88RRP
A firm must add to its estimates a margin of conservatism that is related to the expected range of estimation errors. Where methods and data are less satisfactory and the expected range of errors is larger, the margin of conservatism must be larger.[Note:BCD Annex VII Part 4 point 54]
BIPRU 4.3.90RRP
If a firm uses different estimates for the calculation of risk weights and internal purposes it must be documented. The firm must be able to demonstrate to the appropriate regulator the reasonableness of such estimates.[Note:BCD Annex VII Part 4 point 55]
BIPRU 4.3.91GRP
If a firm can demonstrate to the appropriate regulator that for data that has been collected prior to 31 December 2006, appropriate adjustments have been made to achieve broad equivalence with the definitions of default or loss, the appropriate regulator may in the IRB permission allow the firm some flexibility in the application of the required standards for data.[Note:BCD Annex VII Part 4 point 56]
BIPRU 4.3.92RRP
If a firm uses data that is pooled across institutions it must be able to demonstrate to the appropriate regulator that:(1) the rating systems and criteria of other firms in the pool are similar to its own;(2) the pool is representative of the portfolio for which the pooled data is used; and(3) the pooled data is used consistently over time by the firm for its permanent estimates.2[Note:BCD Annex VII Part 4 point 57]
BIPRU 4.3.94RRP
If a firm uses data that is pooled across institutions it remains responsible for the integrity of its rating systems. If a firm uses such data it must be able to demonstrate to the appropriate regulator that it has sufficient in-house understanding of its rating systems, including effective ability to monitor and audit the rating process.[Note:BCD Annex VII Part 4 point 58]
BIPRU 4.3.99RRP
A firm must estimate LGDs by facility grade or pool on the basis of the average realised LGDs by facility grade or pool using all observed defaults within the data sources (default weighted average).[Note:BCD Annex VII Part 4 point 73]
BIPRU 4.3.103RRP
A firm must use LGD estimates that are appropriate for an economic downturn if those are more conservative than the long-run average. To the extent a rating system is expected to deliver constant realised LGDs by grade or pool over time, a firm must make adjustments to its estimates of risk parameters by grade or pool to limit the capital impact of an economic downturn.[Note:BCD Annex VII Part 4 point 74]
BIPRU 4.3.116RRP
A firm must consider the extent of any dependence between the risk of the obligor with that of the collateral or collateral provider. Cases where there is a significant degree of dependence must be addressed in a conservative manner.[Note:BCD Annex VII Part 4 point 75]
BIPRU 4.3.117RRP
Currency mismatches between the underlying obligation and the collateral must be treated conservatively in the firm's assessment of LGD.[Note:BCD Annex VII Part 4 point 76]
BIPRU 4.3.118RRP
To the extent that LGD estimates take into account the existence of collateral, these estimates must not solely be based on the collateral's estimated market value. LGD estimates must take into account the effect of the potential inability of the firm expeditiously to gain control of its collateral and liquidate it.[Note:BCD Annex VII Part 4 point 77]
BIPRU 4.3.120RRP
To the extent that LGD estimates take into account the existence of collateral, a firm must establish internal requirements for collateral management, legal certainty and risk management that are generally consistent with those set out in BIPRU 5 (Credit risk mitigation) as modified by BIPRU 4.10.[Note:BCD Annex VII Part 4 point 78]
BIPRU 4.3.121RRP
To the extent that a firm recognises collateral for determining the exposure value for counterparty credit risk according to the CCR standardised method or the CCR internal model method, any amount expected to be recovered from the collateral must not be taken into account in the LGD estimates.[Note:BCD Annex VII Part 4 point 79]
BIPRU 4.3.122RRP
For the specific case of exposures already in default, a firm must use the sum of its best estimate of expected loss for each exposure given current economic circumstances and exposure status and the possibility of additional unexpected losses during the recovery period.[Note:BCD Annex VII Part 4 point 80]
BIPRU 4.3.123RRP
To the extent that unpaid late fees have been capitalised in a firm's income statement, they must be added to the firm's measure of exposure and loss.[Note:BCD Annex VII Part 4 point 81]
BIPRU 4.3.125RRP
A firm must estimate conversion factors by facility grade or pool on the basis of the average expected conversion factors by facility grade or pool using all observed defaults within the data sources (default weighted average).[Note:BCD Annex VII Part 4 point 87]
BIPRU 4.3.127RRP
A firm must use conversion factor estimates that are appropriate for an economic downturn if those are more conservative than the long-run average. To the extent a rating system is expected to deliver realised conversion factors at a constant level by grade or pool over time, a firm must make adjustments to its estimates of risk parameters by grade or pool to limit the capital impact of an economic downturn.[Note:BCD Annex VII Part 4 point 88]
BIPRU 4.3.128RRP
A firm's estimates of conversion factors must reflect the possibility of additional drawings by the obligor up to and after the time a default event is triggered. The conversion factor estimate must incorporate a larger margin of conservatism where a stronger positive correlation can reasonably be expected between the default frequency and the magnitude of conversion factor.[Note:BCD Annex VII Part 4 point 89]
BIPRU 4.3.129RRP
In arriving at estimates of conversion factors a firm must consider its specific policies and strategies adopted in respect of account monitoring and payment processing. A firm must also consider its ability and willingness to prevent further drawings in circumstances short of payment default, such as covenant violations or other technical default events.[Note:BCD Annex VII Part 4 point 90]
BIPRU 4.3.130RRP
A firm must have adequate systems and procedures in place to monitor facility amounts, current outstandings against committed lines and changes in outstandings per obligor and per grade. A firm must be able to monitor outstanding balances on a daily basis.[Note:BCD Annex VII Part 4 point 91]
BIPRU 4.3.131RRP
If a firm uses different estimates of conversion factors for the calculation of risk weighted exposure amounts and internal purposes it must be documented. The firm must be able to demonstrate their reasonableness to the appropriate regulator.[Note:BCD Annex VII Part 4 point 92]
BIPRU 13.6.6RRP
A firm may determine the exposure value for:(1) financial derivative instruments;(2) repurchase transactions;(3) securities or commodities lending or borrowing transactions;(4) margin lending transactions; and(5) long settlement transactionsusing the CCR internal model method.[Note: BCD Annex III Part 2 point 2]
BIPRU 13.6.7RRP
A firm may use the CCR internal model method to calculate the exposure value for:(1) the transactions in BIPRU 13.6.6 R (1); or(2) the transactions in BIPRU 13.6.6 R (2), (3) and (4); or(3) the transactions in BIPRU 13.6.6 R (1) to (4).[Note: BCD Annex III Part 6 point 1 (part)]
BIPRU 13.6.8RRP
In each of BIPRU 13.6.7 R (1), (2) and (3), a firm may include long settlement transactions as well.[Note: BCD Annex III Part 6 point 1 (part)]
BIPRU 13.6.9GRP
Point 2 of Part 6 of Annex III of the Banking Consolidation Directive provides that a firm using the CCR internal model method may use a type of model other than the type set out in BIPRU 13.6. If the appropriate regulator agrees to this the details of the model and the necessary calculations will be set out in the CCR internal model method permission, which will modify BIPRU 13.6 to the extent necessary. The appropriate regulator would not expect to agree to such a request unless
BIPRU 13.6.10RRP
For all financial derivative instruments and for long settlement transactions which are outside the scope of a firm'sCCR internal model method permission, a firm must use the CCR mark to market method or the CCR standardised method.[Note: BCD Annex III Part 6 point 3 first sentence]
BIPRU 13.6.11RRP
Under BIPRU 13.6.10 R, combined use of the CCR mark to market method and the CCR standardised method is only permitted where one of the methods is used for the cases set out in BIPRU 13.5.9 R to BIPRU 13.5.10 R.[Note: BCD Annex III Part 6 point 3 second sentence]
BIPRU 13.6.12RRP
Notwithstanding 2BIPRU 13.3.10 R2 (Combined use), a firm may choose not to apply the CCR internal model method to exposures that are immaterial in size and risk.[Note: BCD Annex III Part 6 point 1 third sentence]
BIPRU 13.6.13RRP
If permitted by its CCR internal model method permission, and subject to its terms, a firm may carry out the implementation of the CCR internal model method sequentially across different transaction types; and during this period the firm may use the CCR mark to market method or the CCR standardised method.[Note: BCD Annex III Part 6 point 2]
BIPRU 13.6.17RRP
Subject to BIPRU 13.6.10 R to BIPRU 13.6.16 G, a firm that has a CCR internal model method permission must not use the CCR mark to market method or the CCR standardised method for transactions within the scope of the firm'sCCR internal model method permission.[Note: BCD Annex III Part 6 point 4 (part)]
BIPRU 13.6.18GRP
A firm which wishes to revert to the CCR mark to market method or the CCR standardised method will need to request the appropriate regulator to revoke or vary its CCR internal model method permission.[Note: BCD Annex III Part 6 point 4 (part)]
BIPRU 13.6.19GRP
The appropriate regulator will not agree to a firm's request to revoke or vary its CCR internal model method permission except for demonstrated good cause.[Note: BCD Annex III Part 6 point 4 (part)]
BIPRU 13.6.20RRP
If a firm ceases to comply with the requirements set out in BIPRU 13.6, it must either present to the appropriate regulator a plan for a timely return to compliance or demonstrate that the effect of non-compliance is immaterial.[Note: BCD Annex III Part 6 point 4 (part)]
BIPRU 13.6.21GRP
If a firm ceases to comply with the requirements set out in BIPRU 13.6, the appropriate regulator may revoke the CCR internal model method permission or take other appropriate supervisory action.[Note: BCD Annex III Part 6 point 4 (part)]
BIPRU 13.6.22RRP
(1) A firm must measure the exposure value at the level of the netting set.(2) The model must specify the forecasting distribution for changes in the market value of the netting set attributable to changes in market variables, such as interest rates, foreign exchange rates.(3) The model must then compute the exposure value for the netting set at each future date given the changes in the market variables.(4) For margined counterparties, the model may also capture future collateral
BIPRU 13.6.23RRP
A firm may include eligible financial collateral as defined in BIPRU 5.4.8 R (Eligible collateral under financial collateral comprehensive method) and BIPRU 14.2.15 R to BIPRU 14.2.17 R in its forecasting distributions for changes in the market value of the netting set, if the quantitative, qualitative and data requirements for the CCR internal model method are met for the collateral.[Note: BCD Annex III Part 6 point 6]
BIPRU 13.6.24RRP
A firm must calculate the exposure value as the product of alpha (), as set out in BIPRU 13.6.31 R, times effective EPE:Exposure value = effective EPE[Note: BCD Annex III Part 6 point 7 first part]
BIPRU 13.6.25RRP
A firm must compute effective EPE by estimating expected exposure (EEt) as the average exposure at future date t, where the average is taken across possible future values of relevant market risk factors. The model estimates EE at a series of future dates t1, t2, t3, etc.[Note: BCD Annex III Part 6 point 7 third part]
BIPRU 13.6.26RRP
A firm must compute effective EE recursively as:Effective EEtk = max(effective EEtk-1; EEtk)where:the current date is denoted as t0 and Effective EEt0 equals current exposure.[Note: BCD Annex III Part 6 point 8]
BIPRU 13.6.27RRP
For the purposes of 2BIPRU 13.6.25 R2 :2(1) effective EPE is the average effective EE during the first year of future exposure;(2) if all contracts in the netting set mature within less than one year, effective EPE2 is the average of effective EE2 until all contracts in the netting set mature.22[Note: BCD Annex III Part 6 point 9, first part]
BIPRU 13.6.28RRP
A firm must compute effective EPE as a weighted average of effective EE:Effective EPE = (k=1min(1 year;maturity))((Effective EEtk)*(tk))where:the weights ?tk = tk tk-1 allow for the case when future exposure is calculated at dates that are not equally spaced over time.[Note: BCD Annex III Part 6 point 9, second part]
BIPRU 13.6.29RRP
A firm must calculate EE or peak exposure measures based on a distribution of exposures1 that accounts for the possible non-normality of the distribution of exposures.[Note: BCD Annex III Part 6 point 10]
BIPRU 13.6.31RRP
For the purposes of BIPRU 13.6.24 R, alpha () is 1.4 or any higher amount specified in the firm'sCCR internal model method permission.[Note: BCD Annex III Part 6 point 7 second part]
BIPRU 13.6.33RRP
If a firm'sCCR internal model method permission permits it, the firm may use its own estimates of , subject to a floor of 1.2, where must equal the ratio of internal capital from a full simulation of CCRexposure across counterparties (numerator) and internal capital based on EPE (denominator).[Note: BCD Annex III Part 6 point 12 (part)]
BIPRU 13.6.34RRP
For the purposes of BIPRU 13.6.33 R:(1) in the denominator, EPE must be used as if it were a fixed outstanding amount;(2) a firm must be able to demonstrate that its internal estimates of capture in the numerator material sources of stochastic dependency of distribution of market values of transactions or of portfolios of transactions across counterparties;(3) internal estimates of must take account of the granularity of portfolios.[Note: BCD Annex III Part 6 point 12 (part
BIPRU 13.6.35RRP
A firm must ensure that the numerator and denominator of are computed in a consistent fashion with respect to the modelling methodology, parameter specifications and portfolio composition. The approach used must be based on the firm's internal capital approach, be well-documented and be subject to independent validation. In addition, a firm must review their estimates on at least a quarterly basis, and more frequently when the composition of the portfolio varies over time. A
BIPRU 13.6.35ARRP
3Where appropriate, volatilities and correlations of market risk factors used in the joint simulation of market risk and credit risk must be conditioned on the credit risk factor to reflect potential increases in volatility or correlation in an economic downturn.[Note: BCD Annex III Part 6 point 14]
BIPRU 13.6.38RRP
If the netting set is subject to a margin agreement, a firm must use one of the following EPE measures:(1) effective EPE without taking into account the margin agreement;(2) the margin threshold, if positive, under the margin agreement plus an add-on that reflects the potential increase in exposure over the margin period of risk:(a) the add-on is computed as the expected increase in the netting set'sexposure beginning from a current exposure of zero over the margin period of risk;(b)
BIPRU 13.6.40RRP
A firm'sEPE model must meet the operational requirements set out in BIPRU 13.6.41 R to BIPRU 13.6.66 R.[Note: BCD Annex III Part 6 point 16]
BIPRU 13.6.41RRP
(1) The firm must have a control unit that is responsible for the design and implementation of its CCR management system, including the initial and on-going validation of the model.(2) This unit must control input data integrity and produce and analyse reports on the output of the firm's risk measurement model, including an evaluation of the relationship between measures of risk exposure and credit and trading limits.(3) This unit must be:(a) independent from units responsible
BIPRU 13.6.42RRP
(1) A firm must have CCR management policies, processes and systems that are conceptually sound and implemented with integrity.(2) A sound CCR management framework must include the identification, measurement, management, approval and internal reporting of CCR.[Note: BCD Annex III Part 6 point 18]
BIPRU 13.6.43RRP
(1) A firm's risk management policies must take account of market risk, liquidity risk, and legal and operational risk that can be associated with CCR.(2) The firm must not undertake business with a counterparty without assessing its creditworthiness and must take due account of settlement and pre-settlement credit risk.(3) These risks must be managed as comprehensively as practicable at the counterparty level (aggregating CCRexposures with other credit exposures) and at the firm-wide
BIPRU 13.6.44RRP
A firm'sgoverning body and senior management must be actively involved in the CCR control process and must regard this as an essential aspect of the business to which significant resources need to be devoted. Senior management must be aware of the limitations and assumptions of the model used and the impact these can have on the reliability of the output. Senior management must also consider the uncertainties of the market environment and operational issues and be aware of how
BIPRU 13.6.45RRP
A firm must ensure that the daily reports prepared on its exposures to CCR are reviewed by a level of management with sufficient seniority and authority to enforce both reductions of positions taken by individual credit managers or traders and reductions in the firm's overall CCRexposure.[Note: BCD Annex III Part 6 point 21]
BIPRU 13.6.46RRP
(1) A firm's CCR management system must be used in conjunction with internal credit and trading limits.(2) A firm must ensure that its credit and trading limits are related to its risk measurement model in a manner that is:(a) consistent over time; and(b) well understood by credit managers, traders and senior management.[Note: BCD Annex III Part 6 point 22]
BIPRU 13.6.47RRP
(1) A firm's measurement of CCR must include measuring daily and intra-day usage of credit lines.(2) The firm must measure current exposure gross and net of collateral.(3) At portfolio and counterparty level, the firm must calculate and monitor peak exposure or potential future exposure (PFE) at the confidence interval chosen by the firm.(4) The firm must take account of large or concentrated positions, including by groups of related counterparties, by industry, by market, etc.[Note:
BIPRU 13.6.48RRP
(1) A firm must have a routine and rigorous program of stress testing in place as a supplement to the CCR analysis based on the day-to-day output of the firm's risk measurement model.(2) The results of this stress testing must be reviewed periodically by senior management and must be reflected in the CCR policies and limits set by management and the governing body.(3) Where stress tests reveal particular vulnerability to a given set of circumstances, prompt steps must be taken
BIPRU 13.6.49RRP
(1) A firm must have a routine in place for ensuring compliance with a documented set of internal policies, controls and procedures concerning the operation of the CCR management system.(2) The firm's CCR management system must be well documented and must provide an explanation of the empirical techniques used to measure CCR.[Note: BCD Annex III Part 6 point 25]
BIPRU 13.6.50RRP
A firm must conduct an independent review of the CCR management system regularly through its own internal auditing process. This review must include both the activities of the business units referred to in BIPRU 13.6.41 R and of the independent CCR control unit. A review of the overall CCR management process must take place at regular intervals and must specifically address, at a minimum:(1) the adequacy of the documentation of the CCR management system and process;(2) the organisation
BIPRU 13.6.51RRP
The distribution of exposures1 generated by the model used to calculate effective EPE must be closely integrated into the day-to-day CCR management process of the firm. The model's output must accordingly play an essential role in the credit approval, CCR management, internal capital allocation, and corporate governance of the firm.[Note: BCD Annex III Part 6 point 27]
BIPRU 13.6.52RRP
A firm must have a track record in the use of models that generate a distribution of exposures1 to CCR. Thus, the firm must be able to demonstrate that it has been using a model to calculate the distribution of exposures1 upon which the EPE calculation is based that meets, broadly, the minimum requirements set out in BIPRU 13.6 for at least one year prior to the date of its CCR internal model method permission.[Note: BCD Annex III Part 6 point 28]
BIPRU 13.6.53RRP
(1) A firm must ensure that the model used to generate a distribution of exposures1 to CCR is part of a CCR management framework that includes the identification, measurement, management, approval and internal reporting of CCR. This framework must include the measurement of usage of credit lines (aggregating CCRexposures with other credit exposures) and internal capital allocation.(2) In addition to EPE, a firm must measure and manage current exposures.(3) Where appropriate, the
BIPRU 13.6.54RRP
A firm must have the systems capability to estimate EE daily if necessary, unless it is able to demonstrate to the appropriate regulator that its exposures to CCR warrant less frequent calculation. The firm must compute EE along a time profile of forecasting horizons that adequately reflects the time structure of future cash flows and maturity of the contracts and in a manner that is consistent with the materiality and composition of the exposures.[Note: BCD Annex III Part 6 point
BIPRU 13.6.55RRP
(1) Exposure must be measured, monitored and controlled over the life of all contracts in the netting set (not just to the one year horizon).(2) A firm must have procedures in place to identify and control the risks for counterparties where the exposure rises beyond the one-year horizon.(3) A firm must input the forecast increase in exposure into the firm's internal capital model.[Note: BCD Annex III Part 6 point 31]
BIPRU 13.6.56RRP
(1) A firm must have in place sound stress testing processes for use in the assessment of capital adequacy for CCR.(2) These stress measures must be compared with the measure of EPE and considered by the firm as part of the process set out in GENPRU 1.2.42 R.(3) Stress testing must also involve identifying possible events or future changes in economic conditions that could have unfavourable effects on a firm's credit exposures and an assessment of the firm's ability to withstand
BIPRU 13.6.57RRP
(1) A firm must stress test its CCRexposures, including jointly stressing market risk and credit risk factors.(2) In its stress tests of CCR, a firm must consider concentration risk (to a single counterparty or groups of counterparties), correlation risk across market risk and credit risk, and the risk that liquidating the counterparty's positions could move the market.(3) In its stress tests a firm must also consider the impact on its own positions of such market moves and integrate
BIPRU 13.6.58RRP
A firm must give due consideration to exposures that give rise to a significant degree of general wrong-way risk.[Note: BCD Annex III Part 6 point 34]
BIPRU 13.6.59RRP
A firm must have procedures in place to identify, monitor and control cases of specific wrong-way risk, beginning at the inception of a transaction and continuing through the life of the transaction.[Note: BCD Annex III Part 6 point 35]
BIPRU 13.6.60RRP
A firm must ensure that:(1) the model reflects transaction terms and specifications in a timely, complete, and conservative fashion;(2) such terms include at least:(a) contract notional amounts;(b) maturity;(c) reference assets;(d) margining arrangements; and(e) netting arrangements;(3) the terms and specifications are maintained in a database that is subject to formal and periodic audit;(4) the process for recognising netting arrangements requires:(a) signoff by legal staff
BIPRU 13.6.61RRP
A firm must ensure that:(1) the model employs current market data to compute current exposures;(2) when using historical data to estimate volatility and correlations, at least three years of historical data are used and updated quarterly or more frequently if market conditions warrant;(3) the data covers a full range of economic conditions, such as a full business cycle;(4) a unit independent from the business unit validates the price supplied by the business unit;(5) the data
BIPRU 13.6.63RRP
A firm must ensure that the model is subject to a validation process which:(1) is clearly articulated in firms' policies and procedures;(2) specifies the kind of testing needed to ensure model integrity(3) identifies conditions under which assumptions are violated and may result in an understatement of EPE; and(4) includes a review of the comprehensiveness of the model.[Note: BCD Annex III Part 6 point 38]
BIPRU 13.6.64RRP
A firm must monitor the appropriate risks and have processes in place to adjust its estimation of EPE when those risks become significant. This includes the following:(1) the firm must identify and manage its exposures to specific wrong-way risk;(2) for exposures with a rising risk profile after one year, the firm must compare on a regular basis the estimate of EPE over one year with EPE over the life of the exposure; and(3) for exposures with a residual maturity below one year,
BIPRU 13.6.65RRP
A firm must have internal procedures to verify that, prior to including a transaction in a netting set, the transaction is covered by a legally enforceable netting contract that meets the requirements set out in BIPRU 13.7.[Note: BCD Annex III Part 6 point 40]
BIPRU 13.6.66RRP
A firm that makes use of collateral to mitigate its CCR must have internal procedures to verify that, prior to recognising the effect of collateral in its calculations, the collateral meets the legal certainty standards set out in BIPRU 5 as modified, where relevant, by BIPRU 4.10.[Note: BCD Annex III Part 6 point 41]
BIPRU 13.6.67RRP
(1) A firm'sCCR internal model method model must meet the validation requirements in (2) to (8).(2) The qualitative validation requirements set out in BIPRU 7.10 must be met.(3) Interest rates, foreign currency rates, equity prices, commodities, and other market risk factors must be forecast over long time horizons for measuring CCRexposure. The performance of the forecasting model for market risk factors must be validated over a long time horizon.(4) The pricing models used to
BIPRU 13.6.68GRP
If backtesting indicates that the CCR internal model method model is not sufficiently accurate, the appropriate regulator may revoke a firm'sCCR internal model method permission or take appropriate measures to ensure that the model is improved promptly. Measures taken by the appropriate regulator may include the use of its own-initiative power to require the firm to hold more capital resources.[Note: BCD Annex III Part 6 point 42 (part)]
BIPRU 4.4.2RRP
The following exposures must be treated as exposures to central governments and central banks:(1) exposures to regional governments, local authorities or public sector entities which are treated as exposures to central governments under the standardised approach; and(2) exposures to multilateral development banks and international organisations which attract a risk weight of 0% under the standardised approach.[Note:BCD Article 86(2)]
BIPRU 4.4.3RRP
The following exposures must be treated as exposures to institutions:(1) exposures to regional governments and local authorities which are not treated as exposures to central governments under the standardised approach;(2) exposures to public sector entities which are treated as exposures to institutions under the standardised approach;(3) exposures to multilateral development banks which do not attract a 0% risk weight under the standardised approach; and(4) without prejudice
BIPRU 4.4.4RRP
Any credit obligation not assigned to the IRB exposure classes referred to in BIPRU 4.3.2 R (1) (Sovereigns), BIPRU 4.3.2 R (2) (Institutions) and BIPRU 4.3.2 R (4) - BIPRU 4.3.2 R (6) (Retail, equity and securitisations) must be assigned to the corporate exposure class.[Note:BCD Article 86(7)]
BIPRU 4.4.6RRP
A rating system must take into account obligor and transaction risk characteristics.[Note: BCD Annex VII Part 4 point 5]
BIPRU 4.4.7RRP
A rating system must have an obligor rating scale which reflects exclusively quantification of the risk of obligor default. The obligor rating scale must have a minimum of seven grades for non-defaulted obligors and one for defaulted obligors.[Note:BCD Annex VII Part 4 point 6]
BIPRU 4.4.8RRP
An obligor grade means for the purpose of BIPRU 4 as it applies to the sovereign, institution and corporate IRB exposure class a risk category within a rating system's obligor rating scale, to which obligors are assigned on the basis of a specified and distinct set of rating criteria, from which estimates of PD are derived. A firm must document both the relationship between obligor grades in terms of the level of default risk each grade implies and the criteria used to distinguish
BIPRU 4.4.9RRP
A firm with portfolios concentrated in a particular market segment and range of default risk must have enough obligor grades within that range to avoid undue concentrations of obligors in a particular grade. Significant concentrations within a single grade must be supported by convincing empirical evidence that the obligor grade covers a reasonably narrow PD band and that the default risk posed by all obligors in the grade falls within that band.[Note:BCD Annex VII Part 4 point
BIPRU 4.4.11RRP
Each obligor must be assigned to an obligor grade as part of the credit approval process.[Note:BCD Annex VII Part 4 point 19]
BIPRU 4.4.12RRP
Each separate legal entity to which a firm is exposed must be separately rated. A firm must be able to demonstrate to the appropriate regulator that it has acceptable policies regarding the treatment of individual obligor clients and groups of connected clients.[Note:BCD Annex VII Part 4 point 22]
BIPRU 4.4.13RRP
Separate exposures to the same obligor must be assigned to the same obligor grade, irrespective of any differences in the nature of each specific transaction. Exceptions, where separate exposures are allowed to result in multiple grades for the same obligor are:(1) country transfer risk, this being dependent on whether the exposures are denominated in local or foreign currency;(2) where the treatment of associated guarantees to an exposure may be reflected in an adjusted assignment
BIPRU 4.4.15RRP
Assignments and periodic reviews of assignments must be completed or approved by an independent party that does not directly benefit from decisions to extend the credit.[Note:BCD Annex VII Part 4 point 26]
BIPRU 4.4.16RRP
A firm must update assignments at least annually. High risk obligors and problem exposures must be subject to more frequent review. A firm must undertake a new assignment if material information on the obligor or exposure becomes available.[Note:BCD Annex VII Part 4 point 27]
BIPRU 4.4.18RRP
A firm must have an effective process to obtain and update relevant information on obligor characteristics that affect PDs, and on transaction characteristics that affect LGDs and conversion factors.[Note:BCD Annex VII Part 4 point 28]
BIPRU 4.4.21RRP
In addition to complying with the material in BIPRU 4.3.54 R (Data maintenance) a firm must collect and store:(1) complete rating histories on obligors and recognised guarantors;(2) the dates the ratings were assigned;(3) the key data and methodology used to derive the rating;(4) the person responsible for the rating assignment;(5) the identity of obligors and exposures that defaulted;(6) the date and circumstances of such defaults;(7) data on the PDs and realised default rates
BIPRU 4.4.22RRP
(1) This rule, in accordance with BIPRU 4.3.57 R (4) (Definition of default), sets the exact number of days past due that a firm should abide by in the case of exposures to PSEs.(2) For counterparts that are PSEs situated within the United Kingdom the number of days past due is 180.(3) For counterparts that are PSEs situated in another EEA State the number of days past due is the lower of:(a) 180; and(b) the number of days past due fixed under the CRD implementation measure with
BIPRU 4.4.24RRP
A firm must estimate PDs by obligor grade from long run averages of one-year default rates.[Note:BCD Annex VII Part 4 point 59]
BIPRU 4.4.25RRP
A firm must use PD estimation techniques only with supporting analysis. A firm must recognise the importance of judgmental considerations in combining results of techniques and in making adjustments for limitations of techniques and information.[Note:BCD Annex VII Part 4 point 62]
BIPRU 4.4.27RRP
To the extent that a firm uses data on internal default experience for the estimation of PDs it must be able to demonstrate in its analysis that the estimates are reflective of underwriting standards and of any differences in the rating system that generated the data and the current rating system. Where underwriting standards or rating systems have changed, a firm must add a greater margin of conservatism in its estimate of PD.[Note:BCD Annex VII Part 4 point 63]
BIPRU 4.4.28RRP
To the extent that a firm associates or maps its internal grades to the scale used by an ECAI or similar organisations and then attributes the default rate observed for the external organisation's grades to the firm's grades, mappings must be based on a comparison of internal rating criteria to the criteria used by the external organisation and on a comparison of the internal and external ratings of any common obligors. Biases or inconsistencies in the mapping approach or underlying
BIPRU 4.4.30RRP
To the extent that a firm uses statistical default prediction models it may estimate PDs as the simple average of default-probability estimates for individual obligors in a given grade. The firm's use of default probability models for this purpose must meet the standards specified in BIPRU 4.3.51 R.[Note:BCD Annex VII Part 4 point 65]
BIPRU 4.4.31RRP
Irrespective of whether a firm is using external, internal, or pooled data sources, or a combination of the three, for its PD estimation, the length of the underlying historical observation period used must be at least five years for at least one source. If the available observation period spans a longer period for any source, and this data is relevant, this longer period must be used. A firm not permitted to use own estimates of LGDs or conversion factors may have, when it implements
BIPRU 4.4.33RRP
Under the foundation IRB approach a firm must apply the LGD values set out in BIPRU 4.4.34 R and BIPRU 4.8.25 R and the conversion factors set out in BIPRU 4.4.37 R.[Note:BCD Article 87(8)]
BIPRU 4.4.34RRP
A firm must use the following LGD values:(1) senior exposures without eligible collateral, 45%;(2) subordinated exposures without eligible collateral, 75%;(3) a firm may recognise funded and unfunded credit protection in the LGD in accordance with BIPRU 5 (Credit risk mitigation), as modified by BIPRU 4.10;(4) covered bonds may be assigned an LGD value of 11.257%; and7(5) for certain senior corporate exposure purchased receivables, for certain subordinated corporate exposure purchased
BIPRU 4.4.37RRP
(1) The exposure value for the items set out in this rule must be calculated as the committed but undrawn amount multiplied by the applicable conversion factor set out in this rule.(2) For credit lines which are uncommitted, that are unconditionally cancellable at any time by the firm without prior notice, or that effectively provide for automatic cancellation due to deterioration in a borrower's credit worthiness, a conversion factor of 0 % applies. To apply a conversion factor
BIPRU 4.4.38RRP
Where a commitment refers to the extension of another commitment, the lower of the two conversion factors associated with the individual commitment must be used.[Note:BCD Annex VII Part 3 point 10]
BIPRU 4.4.39RRP
For all off-balance sheet items other than mentioned in BIPRU 4.4.37 R, BIPRU 4.4.45 R, BIPRU 4.4.71 R - BIPRU 4.4.78 R, BIPRU 4.6.44 R, BIPRU 4.8.28 R and BIPRU 4.8.29 R, the exposure value must be the following percentage of its value:(1) 100% if it is a full risk item;(2) 50% if it is a medium risk item;(3) 20% if it is a medium/low risk item; and(4) 0% if it is a low risk item.For the purposes of this rule the off-balance sheet items must be assigned to risk categories as
BIPRU 4.4.41RRP
1Under the advanced IRB approach a firm must use its own estimates of LGDs and conversion factors in accordance with BIPRU 4.[Note:BCD Article 87(9)]
BIPRU 4.4.42RRP
1A firm using own LGD estimates under the advanced IRB approach may recognise unfunded credit protection by adjusting PDs subject to BIPRU 4.4.43 R.[Note:BCD Annex VII Part 2 point 6]
BIPRU 4.4.43RRP
1Notwithstanding BIPRU 4.4.34 R and BIPRU 4.8.25 R, if a firm'sIRB permission permits it to use own LGD estimates under the advanced IRB approach for exposures to which BIPRU 4 applies and permits it to use the approach in this rule, unfunded credit protection may be recognised by adjusting PD and/or LGD estimates subject to the minimum IRB standards. A firm must not assign guaranteed exposures an adjusted PD or LGD such that the adjusted risk weight would be lower than that of
BIPRU 4.4.45RRP
1If a firm uses its own estimates of conversion factors under the advanced IRB approach it must calculate the exposure value of off-balance sheet exposures calculated with the use of conversion factors by using its own estimates of conversion factors across different product types as mentioned in BIPRU 4.4.37 R and BIPRU 4.4.39 R (2) to BIPRU 4.4.39 R (4).[Note:BCD Annex VII Part 3 point 9 (part)]
BIPRU 4.4.48RRP
1If a firm'sIRB permission provides for it to use the advanced IRB approach for the calculation of LGDs, its rating system must incorporate a distinct facility rating scale which exclusively reflects LGD related transaction characteristics.[Note:BCD Annex VII Part 4 point 9]
BIPRU 4.4.49RRP
1A facility grade means for the purpose of the advanced IRB approach a risk category within a rating system's facility scale to which exposures are assigned on the basis of a specified and distinct set of rating criteria from which own estimates of LGDs are derived. The grade definition must include both a description of how exposures are assigned to the grade and of the criteria used to distinguish the level of risk across grades.[Note:BCD Annex VII Part 4 point 10]
BIPRU 4.4.50RRP
1Significant concentrations within a single facility grade must be supported by convincing empirical evidence that the facility grade covers a reasonably narrow LGD band, respectively, and that the risk posed by all exposures in the grade falls within that band.[Note:BCD Annex VII Part 4 point 11]
BIPRU 4.4.51RRP
1For a firm permitted to use own estimates of LGDs or conversion factors under the advanced IRB approach, each exposure must be assigned to a facility grade as part of the credit approval process. This is in addition to the requirements in BIPRU 4.4.11 R - BIPRU 4.4.13 R.[Note:BCD Annex VII Part 4 point 20]
BIPRU 4.4.53RRP
1As well as complying with BIPRU 4.3.54 R and BIPRU 4.4.21 R (Data maintenance), a firm using own estimates of LGDs and/or conversion factors under the advanced IRB approach must collect and store:(1) complete histories of data on the facility ratings and LGD and conversion factor estimates associated with each rating scale3;(2) the dates the ratings were assigned and the estimates were done;(3) the key data and methodology used to derive the facility ratings and LGD and conversion
BIPRU 4.4.54RRP
1In addition to the requirements in BIPRU 4.3.74 R - BIPRU 4.3.94 R (General requirements about risk quantification) and BIPRU 4.3.98 R - BIPRU 4.3.123 R (Requirements for risk quantification specific to own-LGD estimates), estimates of LGD must be based on data over a minimum of five years, increasing by one year each year after implementation until a minimum of seven years is reached, for at least one data source. If the available observation period spans a longer period for
BIPRU 4.4.55RRP
1In addition to the requirements in BIPRU 4.3.124 R - BIPRU 4.3.131 R (Requirements specific to own-conversion factor estimates), estimates of conversion factors must be based on data over a minimum of five years, increasing by one year each year after implementation until a minimum of seven years is reached, for at least one data source. If the available observation period spans a longer period for any source, and the data is relevant, this longer period must be used.[Note:BCD
BIPRU 4.4.57RRP
Subject to BIPRU 4.4.59 R to BIPRU 4.4.60 R, BIPRU 4.5.6 R, BIPRU 4.5.8 R - BIPRU 4.5.10 R (Risk weights for specialised lending), BIPRU 4.8.16 R, BIPRU 4.8.17 R (Risk weights for corporate exposure purchased receivables) and BIPRU 4.9.3 R (Securitisation: provision of credit protection), risk weighted exposure amounts must be calculated according to the formulae in the table in BIPRU 4.4.58 R and the adjustment formula in BIPRU 4.4.79 R (Double default).[Note:BCD Annex VII Part
BIPRU 4.4.58RRP
Table: Formulae for the calculation of risk weighted exposure amountsThis table belongs to BIPRU 4.4.57 RCorrelation (R)0.12 × (1 - EXP(-50*PD))/(1-EXP(-50)) + 0.24*[1-(1-EXP(-50*PD))/(1-EXP(-50))]Maturity factor (b)(0.11852-0.05478*1n(PD))2(LGD*N[(1-R)-0.5*G(PD)+(R/(1-R))0.5 *G(0.999)]-PD*LGD)*(1-1.5*b)-1*(1+(M-2.5)*b)*12.5*1.06N(x)denotes the cumulative distribution function for a standard normal random variable (i.e. the probability that a normal random variable with mean zero
BIPRU 4.4.59RRP
For exposures to companies where the total annual sales for the consolidated group of which the firm is a part is less than EUR 50 million a firm may use the following correlation formula for the calculation of risk weights for corporate exposures. In this formula S is expressed as total annual sales in millions of Euros with EUR 5 million < = S < = EUR 50 million. Reported sales of less than EUR 5 million must be treated as if they were equivalent to EUR 5 million. In accordance
BIPRU 4.4.60RRP
A firm must for the purpose of BIPRU 4.4.59 R substitute total assets of the consolidated group for total annual sales when total annual sales are not a meaningful indicator of firm size and total assets are a more meaningful indicator than total annual sales.[Note:BCD Annex VII Part 1 point 5 (part)]
BIPRU 4.4.61RRP
Expected loss amounts must be calculated according to the formulae in the table in BIPRU 4.4.62 R.[Note:BCD Annex VII Part 1 point 30 (part)]
BIPRU 4.4.62RRP
3Table: Formulae for the calculation of expected loss amountsThis table belongs to BIPRU 4.4.61 RExpected loss (EL)equals PD×LGDExpected loss amountequals EL×exposure valueFor defaultedexposures (PD = 1) where a firm uses its own estimates of LGDs, EL must be ELBE, the firm's best estimate of expected loss for the defaultedexposure according to BIPRU 4.3.122 R.For exposures subject to the treatment set out in BIPRU 4.4.79 R (Double default) EL must be 0.[Note:BCD Annex VII Part
BIPRU 4.4.63RRP
A firm must provide its own estimates of PDs in accordance with its IRB permission and the minimum IRB standards.[Note: BCD Article 87(6) (part)]
BIPRU 4.4.64RRP
The PD of a corporate exposure or an exposure in the IRB exposure class referred to in BIPRU 4.3.2 R (2) (Institutions) must be at least 0.03%.[Note:BCD Annex VII Part 2 point 2]
BIPRU 4.4.65RRP
The PD of obligors in default must be 100%.[Note:BCD Annex VII Part 2 point 4]
BIPRU 4.4.66RRP
Subject to BIPRU 4.4.42 R (Advanced IRB approach: LGDs and PDs) a firm may recognise unfunded credit protection in the PD in accordance with the provisions of BIPRU 5 (Credit risk mitigation), as modified by BIPRU 4.10. For dilution risk, however, a firm may also recognise unfunded credit protection providers which are specified in its IRB permission in addition to those indicated in the CRM eligibility conditions.[Note:BCD Annex VII Part 2 point 5]
BIPRU 4.4.67RRP
(1) A firm must calculate maturity (M) for each of the exposures referred to in this rule in accordance with this rule and subject to BIPRU 4.4.68 R to BIPRU 4.4.70 R. In all cases, M must be no greater than 5 years.(2) For an instrument subject to a cash flow schedule M must be calculated according to the following formula:where CFt denotes the cash flows (principal, interest payments and fees) contractually payable by the obligor in period t.(3) For derivatives subject to a
BIPRU 4.4.68RRP
Notwithstanding BIPRU 4.4.67 R (2) - (4)6 and (8)-(9), M must be at least one-day for:6(1) fully or nearly-fully collateralised financial derivative instruments;(2) fully or nearly-fully collateralised margin lending transactions; and(3) repurchase transactions, securities or commodities lending or borrowing transactions,provided the documentation requires daily remargining and daily revaluation and includes provisions that allow for the prompt liquidation or setoff of collateral
BIPRU 4.4.69GRP
The last paragraph of paragraph 14 of Part 2 of Annex VII of the Banking Consolidation Directive says: "In addition, for other short-term exposures specified by the competent authorities which are not part of the credit institution's ongoing financing of the obligor, M shall be at least one-day. A careful review of the particular circumstances shall be made in each case." BIPRU 4.4.67R (10) is currently the only instance where the appropriate regulator has specified any such short-term
BIPRU 4.4.70RRP
Maturity mismatches must be treated as specified in BIPRU 4.10 and BIPRU 5 (Credit risk mitigation).[Note:BCD Annex VII Part 2 point 16]
BIPRU 4.4.71RRP
Unless provided otherwise in BIPRU 4 the exposure value of on-balance sheet exposures must be measured gross of value adjustments. This also applies to assets purchased at a price different than the amount owed. For purchased assets, the difference between the amount owed and the net value recorded on the balance-sheet of the firm is denoted discount if the amount owed is larger, and premium if it is smaller.[Note:BCD Annex VII Part 3 point 1]
BIPRU 4.4.72RRP
A firm must not treat the exposure value of a facility as being less than current drawings under it. Interest accrued to date on an exposure under a facility must be included in current drawings or an allowance for it must be built into the conversion factor.
BIPRU 4.4.73RRP
Where a firm uses master netting agreements in relation to repurchase transactions or securities or commodities lending or borrowing transactions the exposure value must be calculated in accordance with BIPRU 5 (Credit risk mitigation), as modified by BIPRU 4.10, and BIPRU 13.8.[Note:BCD Annex VII Part 3 point 2]
BIPRU 4.4.74RRP
For on-balance sheet netting of loans and deposits a firm must apply for the calculation of the exposure value the methods set out in BIPRU 5 (Credit risk mitigation), as modified by BIPRU 4.10.[Note:BCD Annex VII Part 3 point 3]
BIPRU 4.4.75RRP
The exposure value for leases must be the discounted minimum lease payments. Minimum lease payments are the payments over the lease term that the lessee is or can be required to make and any bargain option (i.e. option the exercise of which is reasonably certain). Any guaranteed residual value fulfilling the set of conditions in BIPRU 5.7.1 R (Eligibility), as modified by BIPRU 4.10.38 R and BIPRU 4.10.39 R (Unfunded credit protection: Eligibility of providers) regarding the eligibility
BIPRU 4.4.76RRP
Where an exposure takes the form of securities or commodities sold, posted or lent under repurchase transactions or securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions, the exposure value must be the value of the securities or commodities determined in accordance with GENPRU 1.3 (Valuation). Where the financial collateral comprehensive method is used, the exposure value must be increased by the volatility adjustment
BIPRU 4.4.77RRP
Notwithstanding BIPRU 4.4.76 R, the exposure value of credit risk exposures outstanding, as determined by the firm, with a central counterparty must be determined in accordance with BIPRU 13.3.3 R and BIPRU 13.8.8 R (Exposure to central counterparty), provided that the central counterparty'sCCRexposures with all participants in its arrangements are fully collateralised on a daily basis.[Note:BCD Annex VII Part 3 point 8]
BIPRU 4.4.78RRP
In the case of any financial derivative instrument, the exposure value must be determined by the methods set out in BIPRU 13.[Note:BCD Annex VII Part 3 point 5]
BIPRU 4.4.79RRP
The risk weighted exposure amount for each exposure which meets the requirements set out in BIPRU 5.7.2 R and BIPRU 4.4.83 R (Double default) may be adjusted according to the following formula:(1) Risk weighted exposure amount = RW *exposure value * (0.15 + 160*PDpp)](2) PDpp = PD of the protection provider(3) RW must be calculated using the relevant risk weight formula set out in BIPRU 4.4.57 R for the exposure, the PD of the obligor and the LGD of a comparable direct exposure
BIPRU 4.4.80RRP
Notwithstanding BIPRU 4.4.34 R and BIPRU 4.4.43 R, for the purposes of BIPRU 4.4.79 R, the LGD of a comparable direct exposure to the protection provider shall either be the LGD associated with an unhedged facility to the guarantor or the unhedged facility of the obligor, depending upon whether in the event both the guarantor and the obligor default during the life of the hedged transaction available evidence and the structure of the guarantee indicate that the amount recovered
BIPRU 4.4.81RRP
For the purposes of BIPRU 4.4.79 R, M must be the effective maturity of the credit protection but at least 1 year.[Note:BCD Annex VII Part 2 point 13 (part)]
BIPRU 4.4.83RRP
An institution, an insurance undertaking (including an insurance undertaking that carries out reinsurance) or an export credit agency which fulfils the following conditions may be recognised as an eligible provider of unfunded credit protection which qualifies for the treatment set out in BIPRU 4.4.79 R:(1) the protection provider has sufficient expertise in providing unfunded credit protection;(2) the protection provider is regulated in a manner equivalent to the rules laid down
BIPRU 4.4.85RRP
To be eligible for the treatment set out in BIPRU 4.4.79 R, credit protection deriving from a guarantee or credit derivative must meet the following conditions:(1) the underlying obligation must be to:(a) a corporate exposure, excluding an exposure to an insurance undertaking (including an insurance undertaking that carries out reinsurance); or(b) an exposure to a regional government, local authority or public sector entity which is not treated as an exposure to a central government
BIPRU 5.4.1RRP
(1) Where the credit risk mitigation used relies on the right of a firm to liquidate or retain assets, eligibility depends upon whether risk weighted exposure amounts, and, as relevant, expected loss amounts, are calculated under the standardised approach or the IRB approach.(2) Eligibility further depends upon whether the financial collateral simple method is used or the financial collateral comprehensive method.(3) In relation to repurchase transactions and securities or commodities
BIPRU 5.4.2RRP
The following financial items may be recognised as eligible collateral under all approaches and methods:(1) cash on deposit with, or cash assimilated instruments held by, the lending firm;(2) debt securities issued by central governments or central banks which securities have a credit assessment by an eligible ECAI or export credit agency recognised as eligible for the purposes of the standardised approach, which is associated with credit quality step 4 or above under the rules
BIPRU 5.4.3RRP
For the purposes of BIPRU 5.4.2 R (2), 'debt securities issued by central governments or central banks' include -(1) debt securities issued by regional governments or local authorities exposures to which are treated as exposures to the central government in whose jurisdiction they are established under the standardised approach;(2) debt securities issued by public sector entities which are treated as exposures to central governments in accordance with BIPRU 3.4.24 R;(3) debt securities
BIPRU 5.4.4RRP
For the purposes of BIPRU 5.4.2 R (3), 'debt securities issued by institutions' include:(1) debt securities issued by regional governments or local authorities other than those exposures to which are treated as exposures to the central government in whose jurisdiction they are established under the standardised approach;(2) debt securities issued by public sector entities, exposures to which are treated as exposures to a credit institution under the standardised approach;(3) debt
BIPRU 5.4.5RRP
Debt securities issued by institutions which securities do not have a credit assessment by an eligible ECAI may be recognised as eligible collateral if they fulfil the following criteria:(1) they are listed on a recognised investment exchange or a designated investment exchange;(2) they qualify as senior debt;(3) all other rated issues by the issuing institution of the same seniority have a credit assessment by an eligible ECAI associated with credit quality step 3 or above under
BIPRU 5.4.6RRP
(1) Units in CIUs may be recognised as eligible collateral if the following conditions are satisfied:(a) they have a daily public price quote;4(b) the CIU is limited to investing in instruments that are eligible for recognition under BIPRU 5.4.2 R to BIPRU 5.4.5 R; and4(c) 4if the CIU is not limited to investing in instruments that are eligible for recognition under BIPRU 5.4.2 R to BIPRU 5.4.5 R, units may be recognised with the value of the eligible assets as collateral under
BIPRU 5.4.7RRP
In relation to BIPRU 5.4.2 R (2) to (5):(1) where a security has two credit assessments by eligible ECAIs, the less favourable assessment must be deemed to apply;(2) in cases where a security has more than two credit assessments by eligible ECAIs:(a) the two most favourable assessments must be deemed to apply; or(b) if the two most favourable credit assessments are different, the less favourable of the two must be deemed to apply.[Note:BCD Annex VIII Part 1 point 10]
BIPRU 5.4.8RRP
(1) In addition to the collateral set out in BIPRU 5.4.2 R to BIPRU 5.4.7 R, where a firm uses the financial collateral comprehensive method, the following financial items may be recognised as eligible collateral:(a) equities or convertible bonds not included in a main index but traded on a recognised investment exchange or a designated investment exchange;(b) units in CIUs if the following conditions are met:(i) they have a daily public price quote; and(ii) the CIU is limited
BIPRU 5.4.9RRP
For the recognition of financial collateral and gold, the following conditions must be met:(1) the low correlation conditions in BIPRU 5.4.10 R;(2) the legal certainty conditions in BIPRU 5.4.11 R; and(3) the operational requirements in BIPRU 5.4.12 R.[Note:BCD Annex VIII Part 2 point 6]
BIPRU 5.4.10RRP
The low correlation conditions referred to in BIPRU 5.4.9 R (1) are as follows:(1) (a) the credit quality of the obligor and the value of the collateral must not have a material positive correlation; and(b) securities issued by the obligor, or any related group entity are not eligible.(2) notwithstanding (1)(b), the obligor's own issues of covered bonds falling within the terms of BIPRU 3.4.107 R to BIPRU 3.4.109 R may be recognised as collateral for repurchase transactions, provided
BIPRU 5.4.11RRP
The legal certainty conditions referred to in BIPRU 5.4.9 R (2) are as follows:(1) a firm must fulfil any contractual and statutory requirements in respect of, and take all steps necessary to ensure, the enforceability of the collateral arrangements under the law applicable to its interest in the collateral;(2) in accordance with the general principle in BIPRU 5.2.2 R, a firm must have conducted sufficient legal review confirming the enforceability of the collateral arrangements
BIPRU 5.4.12RRP
The operational requirements referred to in BIPRU 5.4.9 R (3) are as follows:(1) the collateral arrangements must be properly documented, with a clear and robust procedure for the timely liquidation of collateral;(2) a firm must employ robust procedures and processes to control risks arising from the use of collateral - including risks of failed or reduced credit protection, valuation risks, risks associated with the termination of the credit protection, concentration risk arising
BIPRU 5.4.13RRP
In addition to the requirements set out in BIPRU 5.4.9 R, for the recognition of financial collateral under the financial collateral simple method the residual maturity of the protection must be at least as long as the residual maturity of the exposure.[Note:BCD Annex VIII Part 2 point 7]
BIPRU 5.4.15RRP
The financial collateral simple method is available only where risk weighted exposure amounts are calculated under the standardised approach to credit risk.[Note:BCD Annex VIII Part 3 point 24 (part)]
BIPRU 5.4.16RRP
A firm must not use both the financial collateral simple method and the financial collateral comprehensive method, unless such use is for the purposes of BIPRU 4.2.17 R to BIPRU 4.2.19 R and BIPRU 4.2.26 R, and such use is provided for by the firm'sIRB permission. A firm must demonstrate to the appropriate regulator that this exceptional application of both methods is not used selectively with the purpose of achieving reduced minimum capital requirements and does not lead to regulatory
BIPRU 5.4.17RRP
Under the financial collateral simple method, recognised financial collateral is assigned a value equal to its market value as determined in accordance with BIPRU 5.4.12 R.[Note:BCD Annex VIII Part 3 point 25]
BIPRU 5.4.18RRP
The risk weight that would be assigned under the standardised approach to credit risk if the lending firm had a direct exposure to the collateral instrument must be assigned to those portions of exposure values4 collateralised by the market value of recognised collateral. For this purpose, the exposure value of an off-balance sheet item listed in BIPRU 3.7.2 R must be 100% of its value rather than the exposure value indicated in BIPRU 3.2.1 R.4 The risk weight of the collateralised
BIPRU 5.4.20RRP
A risk weight of 0% must, to the extent of the collateralisation, be assigned to the exposure values determined under BIPRU 13 for financial derivative instruments and subject to daily marking-to-market, collateralised by cash or cash assimilated instruments where there is no currency mismatch. A risk weight of 10% must be assigned to the extent of the collateralisation to the exposure values of such transactions collateralised by debt securities issued by central governments
BIPRU 5.4.21RRP
A 0% risk weight may be assigned where the exposure and the collateral are denominated in the same currency, and either:(1) the collateral is cash on deposit or a cash assimilated instrument; or(2) the collateral is in the form of debt securities issued by central governments or central banks eligible for a 0% risk weight under the standardised approach, and its market value has been discounted by 20%.[Note:BCD Annex VIII Part 3 point 29]
BIPRU 5.4.22RRP
For the purposes of BIPRU 5.4.20 R and BIPRU 5.4.21 R 'debt securities issued by central governments or central banks' must include:(1) debt securities issued by regional governments or local authorities exposures to which are treated as exposures to the central government in whose jurisdiction they are established under the standardised approach;(2) debt securities issued by multilateral development banks to which a 0% risk weight is assigned under or by virtue of the standardised
BIPRU 5.4.24RRP
In valuing financial collateral for the purposes of the financial collateral comprehensive method, volatility adjustments must be applied to the market value of collateral, as set out in BIPRU 5.4.30 R to BIPRU 5.4.65 R, in order to take account of price volatility.[Note:BCD Annex VIII Part 3 point 30]
BIPRU 5.4.25RRP
Subject to the treatment for currency mismatches in the case of financial derivative instrument set out in BIPRU 5.4.26 R, where collateral is denominated in a currency that differs from that in which the underlying exposure is denominated, an adjustment reflecting currency volatility must be added to the volatility adjustment appropriate to the collateral as set out in BIPRU 5.4.30 R to BIPRU 5.4.65 R.[Note:BCD Annex VIII Part 3 point 31]
BIPRU 5.4.26RRP
In the case of financial derivative instrument covered by netting agreements recognised under BIPRU 13, a volatility adjustment reflecting currency volatility must be applied when there is a mismatch between the collateral currency and the settlement currency. Even in the case where multiple currencies are involved in the transactions covered by the netting agreement, only a single volatility adjustment may be applied.[Note:BCD Annex VIII Part 3 point 32]
BIPRU 5.4.27RRP
In the case of a firm using the financial collateral comprehensive method, where an exposure takes the form of securities or commodities sold, posted or lent under a repurchase transaction or under a securities or commodities lending or borrowing transaction, and margin lending transactions the exposure value must be increased by the volatility adjustment appropriate to such securities or commodities as prescribed in BIPRU 5.4.30 R to BIPRU 5.4.65 R.[Note: BCD Article 78(1), third
BIPRU 5.4.28RRP
(1) The volatility-adjusted value of the collateral to be taken into account is calculated as follows in the case of all transactions except those transactions subject to recognised master netting agreements to which the provisions set out in BIPRU 5.6.5 R to BIPRU 5.6.29 R are to be applied:CVA = C x (1-HC-HFX)(2) The volatility-adjusted value of the exposure to be taken into account is calculated as follows:EVA = E x (1+HE), and in the case of financial derivative instruments
BIPRU 5.4.30RRP
Volatility adjustments may be calculated in two ways: the supervisory volatility adjustments approach and the own estimates of volatility adjustments approach.[Note:BCD Annex VIII Part 3 point 34]
BIPRU 5.4.31RRP
A firm may choose to use the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach independently of the choice it has made between the standardised approach and the IRB approach for the calculation of risk weighted exposure amounts. However, if a firm seeks to use the own estimates of volatility adjustments approach, it must do so for the full range of instrument types, excluding immaterial portfolios where it may use the supervisory
BIPRU 5.4.32RRP
Where the collateral consists of a number of recognised items, the volatility adjustment must be(H = ∑i αi Hi)where:(1) ai is the proportion of an item to the collateral as a whole; and(2) Hi is the volatility adjustment applicable to that item.[Note:BCD Annex VIII Part 3 point 35 (part)]
BIPRU 5.4.34RRP
The volatility adjustments to be applied under the supervisory volatility adjustments approach (assuming daily revaluation) are those set out in the tables in BIPRU 5.4.35 R - BIPRU 5.4.38 R.[Note:BCD Annex VIII Part 3 point 36]
BIPRU 5.4.39RRP
(1) For secured lending transactions the liquidation period is 20 business days.(2) For repurchase transactions (except insofar as such transactions involve the transfer of commodities or guaranteed rights relating to title to commodities) and securities lending or borrowing transactions the liquidation period is 5 business days.(3) For other capital market-driven transactions1, the liquidation period is 10 business days.[Note:BCD Annex VIII Part 3 point 37]
BIPRU 5.4.40RRP
In the tables in BIPRU 5.4.35 R - BIPRU 5.4.38 R and in BIPRU 5.4.41 R to BIPRU 5.4.43 R, the credit quality step with which a credit assessment of the debt security is associated is the credit quality step with which the external credit assessment is associated under the standardised approach. For the purposes of this rule, BIPRU 5.4.7 R also applies.[Note:BCD Annex VIII Part 3 point 38]
BIPRU 5.4.41RRP
For non-eligible securities or for commodities lent or sold under repurchase transactions or securities or commodities lending or borrowing transactions, the volatility adjustment is the same as for non-main index equities listed on a recognised investment exchange or a designated investment exchange.[Note:BCD Annex VIII Part 3 point 39]
BIPRU 5.4.42RRP
For eligible units in CIUs the volatility adjustment is the weighted average volatility adjustments that would apply, having regard to the liquidation period of the transaction as specified in BIPRU 5.4.39 R, to the assets in which the fund has invested. If the assets in which the fund has invested are not known to the firm, the volatility adjustment is the highest volatility adjustment that would apply to any of the assets in which the fund has the right to invest.[Note:BCD Annex
BIPRU 5.4.43RRP
For unrated debt securities issued by institutions and satisfying the eligibility criteria in BIPRU 5.4.5 R the volatility adjustments are the same as for securities issued by institutions or corporates with an external credit assessment associated with credit quality steps 2 or 3.[Note:BCD Annex VIII Part 3 point 41]
BIPRU 5.4.45RRP
A firm complying with the requirements set out in BIPRU 5.4.50 R to BIPRU 5.4.60 R may use the own estimates of volatility adjustments approach for calculating the volatility adjustments to be applied to collateral and exposures.[Note:BCD Annex VIII Part 3 point 42]
BIPRU 5.4.46RRP
When debt securities have a credit assessment from an eligible ECAI equivalent to investment grade or better, a firm may calculate a volatility estimate for each category of security.[Note:BCD Annex VIII Part 3 point 43]
BIPRU 5.4.47RRP
In determining relevant categories, a firm must take into account the type of issuer of the security the external credit assessment of the securities, their residual maturity, and their modified duration. Volatility estimates must be representative of the securities included in the category by the firm.[Note:BCD Annex VIII Part 3 point 44]
BIPRU 5.4.48RRP
For debt securities having a credit assessment from an eligible ECAI equivalent to below investment grade and for other eligible collateral the volatility adjustments must be calculated for each individual item.[Note:BCD Annex VIII Part 3 point 45]
BIPRU 5.4.49RRP
A firm using the own estimates of volatility adjustments approach must estimate volatility of the collateral or foreign exchange mismatch without taking into account any correlations between the unsecured exposure, collateral and/or exchange rates.[Note:BCD Annex VIII Part 3 point 46]
BIPRU 5.4.50RRP
In calculating the volatility adjustments, a 99th percentile one-tailed confidence interval must be used.[Note:BCD Annex VIII Part 3 point 47]
BIPRU 5.4.51RRP
The liquidation period is 20 business days for secured lending transactions; 5 business days for repurchase transactions except insofar as such transactions involve the transfer of commodities or guaranteed rights relating to title to commodities and securities lending or borrowing transactions; and 10 business days for other capital market-driven transactions1.[Note:BCD Annex VIII Part 3 point 48]
BIPRU 5.4.52RRP
A firm may use volatility adjustment numbers calculated according to shorter or longer liquidation periods, scaled up or down to the liquidation period set out in BIPRU 5.4.51 R for the type of transaction in question, using the square root of time formula:(HM = HN )√TM/TN)where:(1) TM is the relevant liquidation period;(2) HM is the volatility adjustment under TM ; and(3) HN is the volatility adjustment based on the liquidation period TN.[Note:BCD Annex VIII Part 3 point 49]
BIPRU 5.4.53RRP
A firm must take into account the illiquidity of lower-quality assets. The liquidation period must be adjusted upwards in cases where there is doubt concerning the liquidity of the collateral. A firm must also identify where historical data may understate potential volatility, e.g. a pegged currency. Such cases must be dealt with by means of stress scenario assessments3.[Note:BCD Annex VIII Part 3 point 50]3
BIPRU 5.4.54RRP
The historical observation period (sample period) for calculating volatility adjustments must be a minimum length of one year. For a firm that uses a weighting scheme or other methods for the historical observation period, the effective observation period must be at least one year (that is, the weighted average time lag of the individual observations must not be less than 6 months).[Note:BCD Annex VIII Part 3 point 51]
BIPRU 5.4.56RRP
A firm must update its data sets at least once every three months and must also reassess them whenever market prices are subject to material changes. This implies that volatility adjustments must be computed at least every three months.[Note:BCD Annex VIII Part 3 point 52]
BIPRU 5.4.57RRP
The volatility estimates must be used in the day-to-day risk management process of a firm including in relation to its internal exposure limits.[Note:BCD Annex VIII Part 3 point 53]
BIPRU 5.4.58RRP
If the liquidation period used by a firm in its day-to-day risk management process is longer than that set out in BIPRU 5.4 for the type of transaction in question, the firm's volatility adjustments must be scaled up in accordance with the square root of time formula set out in BIPRU 5.4.52 R.[Note: BCD Annex VIII Part 3 point 54]
BIPRU 5.4.59RRP
A firm must have established procedures for monitoring and ensuring compliance with a documented set of policies and controls for the operation of its system for the estimation of volatility adjustments and for the integration of such estimations into its risk management process.[Note:BCD Annex VIII Part 3 point 55]
BIPRU 5.4.60RRP
An independent review of a firm's system for the estimation of volatility adjustments must be carried out regularly in the firm's own internal auditing process. A review of the overall system for the estimation of volatility adjustments and for integration of those adjustments into the firm's risk management process must take place at least once a year and must specifically address, at a minimum:(1) the integration of estimated volatility adjustments into daily risk management;(2)
BIPRU 5.4.61RRP
The volatility adjustments set out in BIPRU 5.4.34 R to BIPRU 5.4.43 R are the volatility adjustments to be applied where there is daily revaluation. Similarly, where a firm uses its own estimates of the volatility adjustments in accordance with BIPRU 5.4.45 R to BIPRU 5.4.60 R, these must be calculated in the first instance on the basis of daily revaluation. If the frequency of revaluation is less than daily, larger volatility adjustments must be applied. These must be calculated
BIPRU 5.4.62RRP
In relation to repurchase transaction and securities lending or borrowing transactions, where a firm uses the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach and where the conditions set out in (1) - (8) are satisfied, a firm may, instead of applying the volatility adjustments calculated under BIPRU 5.4.30 R to BIPRU 5.4.61 R, apply a 0% volatility adjustment:(1) both the exposure and the collateral are cash or debt securities
BIPRU 5.4.63RRP
The option in BIPRU 5.4.62 R is not available in respect of a firm using the master netting agreement internal models approach.[Note:BCD Annex VIII Part 3 point 58 (part)]
BIPRU 5.4.64RRP
Core market participant means the following entities:(1) the entities mentioned in BIPRU 5.4.2 R (2)exposures to which are assigned a 0% risk weight under the standardised approach to credit risk;(2) institutions;(3) other financial companies (including insurance companies) exposures which are assigned a 20% risk weight under the standardised approach;(4) regulated CIUs that are subject to capital or leverage requirements;(5) regulated pension funds; and(6) a recognised clearing
BIPRU 5.4.65RRP
If under the CRD implementation measure for a particular EEA State with respect to point 58 of Part 3 of Annex VIII of the Banking Consolidation Directive (Conditions for applying the 0% volatility adjustment) the treatment set out in that point is permitted to be applied in the case of repurchase transactions or securities lending or borrowing transactions in securities issued by the domestic government of that EEA State, then a firm may adopt the same approach to the same transactions.[Note:BCD
BIPRU 5.4.66RRP
Under the standardised approachE* as calculated under BIPRU 5.4.28 R must be taken as the exposure value for the purposes of BIPRU 3.2.20 R to BIPRU 3.2.26 R. In the case of off-balance sheet items listed in BIPRU 3.7, E* must be taken as the value to which the percentages indicated in BIPRU 3.2.1 R and BIPRU 3.7.2 R must be applied to arrive at the exposure value.[Note:BCD Annex VIII Part 3 point 60]
BIPRU 4.10.3RRP
A firm using the IRB approach, but not using its own estimates of LGD and conversion factors, may recognise credit risk mitigation in accordance with BIPRU 5 as modified by BIPRU 4.10 in the calculation of risk weighted exposure amounts for the purposes of the calculation of the credit risk capital component or as relevant expected loss amounts for the purposes of the calculation in GENPRU 2.2.191 R to GENPRU 2.2.193 R or GENPRU 2.2.236 R.[Note: BCD Article 91 (as it applies to
BIPRU 4.10.4RRP
(1) Where the requirements of BIPRU 5.2.2 R - BIPRU 5.2.8 R are met the calculation of risk weighted exposure amounts, and, as relevant, expected loss amounts, may be modified in accordance with BIPRU 5 as modified by BIPRU 4.10.(2) No exposure in respect of which credit risk mitigation is obtained must produce a higher risk weighted exposure amount or expected loss amount than an otherwise identical exposure in respect of which there is no credit risk mitigation.(3) Where the
BIPRU 4.10.6RRP
(1) Residential real estate property which is or will be occupied or let by the owner or the beneficial owner in the case of personal investment companies and commercial real estate property, that is offices and other commercial premises, may be recognised as eligible collateral where the conditions set out in the remaining provisions of this paragraph are met.(2) The value of the property must not materially depend upon the credit quality of the obligor. This requirement does
BIPRU 4.10.9RRP
(1) The condition in BIPRU 4.10.6 R (3) does not apply for exposures secured by residential real estate property situated within the territory of another EEA State.(2) However (1) only applies if and to the extent that the CRD implementation measures for that EEA State in relation to the IRB approach implement the option set out in paragraph 16 of Part 1 of Annex VIII of the Banking Consolidation Directive (waiver for residential real estate property) with respect to residential
BIPRU 4.10.10RRP
(1) The condition in BIPRU 4.10.6 R (3) does not apply for commercial real estate property situated within the territory of another EEA State.(2) However (1) only applies if and to the extent that the CRD implementation measures for that EEA State in relation to the IRB approach implement the option set out in paragraph 17 of Part 1 of Annex VIII of the Banking Consolidation Directive (waiver for commercial real estate property) with respect to commercial real estate property
BIPRU 4.10.11RRP
A firm may also recognise as eligible collateral shares in Finnish residential housing companies operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation in respect of residential property which is or will be occupied or let by the owner, as residential real estate collateral, provided that the conditions in BIPRU 4.10.6 R are met.[Note: BCD Annex VIII Part 1 point 14]
BIPRU 4.10.12RRP
A firm may also recognise as eligible collateral shares in Finnish housing companies operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation as commercial real estate collateral, provided that the conditions in BIPRU 4.10.6 R are met.[Note: BCD Annex VIII Part 1 point 15]
BIPRU 4.10.13RRP
For the recognition of real estate collateral: the minimum requirements in BIPRU 3.4.64 R - BIPRU 3.4.73 R must be met with the following adjustments:(1) those provisions apply to all real estate collateral eligible under BIPRU 4.10; and(2) the minimum frequency of valuation as referred to in BIPRU 3.4.66 R is once every year for commercial real estate.[Note: BCD Annex VIII Part 2 point 8 (as it applies to the IRB approach)]
BIPRU 4.10.14RRP
Amounts receivable linked to a commercial transaction or transactions with an original maturity of less than or equal to one year may be recognised as eligible collateral. Eligible receivables do not include those associated with securitisations, sub-participations or credit derivatives or amounts owed by affiliated parties.[Note: BCD Annex VIII Part 1 point 20]
BIPRU 4.10.15RRP
(1) For the recognition of receivables as collateral the requirements in this paragraph must be met.(2) The legal mechanism by which the collateral is provided must be robust and effective and ensure that the lender has clear rights over the proceeds.(3) A firm must take all steps necessary to fulfil local requirements in respect of the enforceability of security interests. There must be a framework which allows the lender to have a first priority claim over the collateral subject
BIPRU 4.10.16RRP
A firm may recognise as eligible collateral a physical item of a type other than those types indicated in BIPRU 4.10.6 R - BIPRU 4.10.12 R (Eligibility of real estate collateral) if its IRB permission provides that the firm may treat collateral of that type as eligible and if the firm is able to demonstrate the following:(1) the existence of liquid markets for disposal of the collateral in an expeditious and economically efficient manner;(2) the existence of well-established,
BIPRU 4.10.18RRP
(1) If a type of other physical collateral referred to in BIPRU 4.10.16 R is potentially eligible under a firm'sIRB permission a firm must only recognise it as eligible if the minimum requirements in (2) to (10) are met.(2) The collateral arrangement must be legally effective and enforceable in all relevant jurisdictions and must enable the firm to realise the value of the property within a reasonable timeframe.(3) With the sole exception of permissible prior claims referred to
BIPRU 4.10.19RRP
(1) Where the requirements set out in this paragraph are met, exposures arising from transactions whereby a firm leases property to a third party must be treated the same as loans collateralised by the type of property leased.(2) For the exposures arising from leasing transactions to be treated as collateralised by the type of property leased, the following conditions must be met:(a) the conditions set out or referred to in BIPRU 4.10.13 R or BIPRU 4.10.18 R as appropriate for
BIPRU 4.10.21RRP
The value of receivables for the purpose of calculating the effect of credit risk mitigation must be the amount receivable.[Note: BCD Annex VIII Part 3 point 66]
BIPRU 4.10.22RRP
Physical collateral recognised as eligible as described in BIPRU 4.10.16 R must be valued for the purpose of calculating the effect of credit risk mitigation at its market value. Market value is the estimated amount for which the property would exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction.[Note: BCD Annex VIII Part 3 point 67]
BIPRU 4.10.24RRP
LGD* (the effective loss given default) calculated as set out in BIPRU 4.10.25 R - BIPRU 4.10.28 R must be taken as the LGD.[Note: BCD Annex VIII Part 3 point 68]
BIPRU 4.10.25RRP
Where the ratio of the value of the collateral (C) to the exposure value (E) is below a threshold level of C* (the required minimum collateralisation level for the exposure) as laid down in BIPRU 4.10.28 R, LGD* must be the LGD laid down in the other sections of BIPRU 4 for uncollateralised exposures to the counterparty. For this purpose, the exposure value of items listed in BIPRU 4.4.37 R to BIPRU 4.4.39 R and BIPRU 4.8.29 R must be calculated using a conversion factor or percentage
BIPRU 4.10.26RRP
Where the ratio of the value of the collateral to the exposure value exceeds a second, higher threshold level of C** (i.e. the required level of collateralisation to receive full LGD recognition) as laid down in BIPRU 4.10.28 R, LGD* must be that prescribed in that table.[Note: BCD Annex VIII Part 3 point 70]
BIPRU 4.10.27RRP
Where the required level of collateralisation C** is not achieved in respect of the exposure as a whole, the exposure must be considered to be two exposures - that part in respect of which the required level of collateralisation C** is achieved and the remainder.[Note: BCD Annex VIII Part 3 point 71]
BIPRU 4.10.28RRP
Table: Minimum LGD for secured portion of exposuresThis table belongs to BIPRU 4.10.24 R - BIPRU 4.10.27 RLGD* for senior claims or contingent claimsLGD* for subordinated claims or contingent claimsRequired minimum collateralisation level of the exposure (C*)Required minimum collateralisation level of the exposure (C**)Receivables35%65%0%125%Residential real estate/commercial real estate35%65%30%140%Other collateral40%70%30%140%[Note: BCD Annex VIII Part 3 point 72 (part)]
BIPRU 4.10.29RRP
(1) A firm may apply the treatment in paragraph 74 of Part 3 of Annex VIII of the Banking Consolidation Directive (50% risk weight for exposures secured by real estate) in respect of exposures collateralised by:(a) residential real estate property; or(b) commercial real estate property;located in the territory of another EEA State.(2) However (1)(a) or (1)(b) only applies if the CRD implementing measures for that EEA State with respect to the IRB approach have implemented the
BIPRU 4.10.30RRP
(1) Where:(a) risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach; and(b) an exposure is collateralised by both financial collateral and other eligible collateral;LGD* to be taken as the LGD for the purposes of the IRB approach must be calculated in accordance with this rule.(2) A firm must subdivide the volatility-adjusted value of the exposure (i.e. the value after the application of the volatility adjustment as set out in BIPRU 5.4.28
BIPRU 4.10.31RRP
The financial collateral simple method must not be used under the IRB approach.[Note: BCD Annex VIII Part 3 point 24 (part)]
BIPRU 4.10.32RRP
(1) This rule sets out how the calculations under BIPRU 5.6.11 R (Using the supervisory volatility adjustments or the own estimates volatility adjustments approaches to master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach,
BIPRU 4.10.33RRP
(1) This rule sets out how the calculations under BIPRU 5.6.24 R (Using the internal models approach to master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach E is the exposure value for each separate exposure under
BIPRU 4.10.34RRP
(1) This rule sets out how the calculations under BIPRU 5.6.29 R (Calculating risk-weighted exposure amounts and expected loss amounts for master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) E* must be taken as the exposure value of the exposure to the counterparty arising from the transactions subject to the master
BIPRU 4.10.36RRP
(1) This rule sets out the calculation of risk weighted exposure amounts2 and expected loss2 amounts under the financial collateral comprehensive method2 for a firm using the IRB approach.222(2) LGD* (the effective loss given default) calculated as set out in this paragraph must be taken as the LGD for the purposes of BIPRU 4.(3) LGD* = LGD x (E*/E) where:(a) LGD is the loss given default that would apply to the exposure under the IRB approach if the exposure was not collateralised;(b)
BIPRU 4.10.37RRP
(1) In the case of a firm using the IRB approach to calculate risk weighted exposure amounts and expected loss amounts, the persons in (2) are added to the list in BIPRU 5.4.64 R (Definition of core market participant).(2) The persons referred to in (1) are other financial companies (including insurance companies) exposures to which do not have a credit assessment by an eligible ECAI and are internally rated as having a probability of default equivalent to that associated with
BIPRU 4.10.38RRP
(1) In the case of a firm using the IRB approach in calculating risk weighted exposure amounts and expected loss amounts, the persons in (2) are added to the list in BIPRU 5.7.1 R (List of eligible providers of unfunded credit protection).(2) The persons referred to in (1) are other corporate entities, including parent undertakings, subsidiary undertakings and affiliate corporate entities of the firm, that do not have a credit assessment by an eligible ECAI and are internally
BIPRU 4.10.39RRP
Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach, to be eligible a guarantor must be internally rated by a firm in accordance with the provisions of the minimum IRB standards.[Note: BCD Annex VIII Part 1 point 27]
BIPRU 4.10.40RRP
BIPRU 4.10.41 R to BIPRU 4.10.48 R set out the minimum requirements:(1) assessing the effect of guarantees and credit derivatives for:(a) exposures in the sovereign, institution and corporate IRB exposure class2 where the advanced IRB approach is being used to calculate LGDs; and(b) retail exposures; and(2) additionally, in the case of retail exposure guarantees, to the assignment of exposures to grades or pools, and the estimation of PD.[Note: BCD Annex VII Part 4 point 97]
BIPRU 4.10.41RRP
The requirements in BIPRU 4.10.40 R (2) and BIPRU 4.10.42 R - BIPRU 4.10.48 R do not apply to3 guarantees provided by institutions, central governments, central banks and other corporate entities which meet the requirements in BIPRU 5.7.1 R (7)31 if the firm has received approval under BIPRU 4.2 to apply the standardised approach for exposures to such entities. In this case the requirements of BIPRU 5 (credit risk mitigation) apply.[Note: BCD Annex VII Part 4 point 96]33
BIPRU 4.10.42RRP
A firm must have clearly specified criteria for the types of guarantors it recognises for the calculation of risk weighted exposure amounts.[Note: Annex VII Part 4 point 98]
BIPRU 4.10.43RRP
For recognised guarantors the same requirements as for obligors as set out in BIPRU 4.3.43 R - BIPRU 4.3.48 R (Assignment to grades and pools), BIPRU 4.4.11 R - BIPRU 4.4.18 R and BIPRU 4.4.51 R (Assignment of exposures and rating systems), BIPRU 4.5.6 R (Assignment of exposures) and BIPRU 4.6.11 R and BIPRU 4.6.14 R (Assignment of exposures and rating systems) apply.[Note: BCD Annex VII Part 4 point 99]
BIPRU 4.10.44RRP
The guarantee must be evidenced in writing, non-cancellable on the part of the guarantor, in force until the obligation is satisfied in full (to the extent of the amount and tenor of the guarantee) and legally enforceable against the guarantor in a jurisdiction where the guarantor has assets to attach and enforce a judgement. Guarantees prescribing conditions under which the guarantor may not be obliged to perform (conditional guarantees) may be recognised if the IRB permission
BIPRU 4.10.45RRP
A firm must have clearly specified criteria for adjusting grades, pools or LGD estimates, and in the case of retail exposures and eligible purchased receivables, the process of allocating exposures to grades or pools, to reflect the impact of guarantees for the calculation of risk weighted exposure amounts. These criteria must comply with the minimum requirements referred to in BIPRU 4.10.43 R.[Note: BCD Annex VII Part 4 point 101]
BIPRU 4.10.46RRP
The criteria in BIPRU 4.10.45 R must be plausible and intuitive. They must address the guarantor's ability and willingness to perform under the guarantee, the likely timing of any payments from the guarantor, the degree to which the guarantor's ability to perform under the guarantee is correlated with the obligor's ability to repay, and the extent to which residual risk to the obligor remains.[Note: BCD Annex VII Part 4 point 102]
BIPRU 4.10.47RRP
The minimum requirements for guarantees set out in BIPRU 4.10 also apply for single name credit derivatives. In relation to a mismatch between the underlying obligation and the reference obligation of the credit derivative or the obligation used for determining whether a credit event has occurred the requirements set out under BIPRU 5.7.14 R (Mismatches and credit derivatives) apply. For retail exposures and eligible purchased receivables, this paragraph applies to the process
BIPRU 4.10.48RRP
The criteria applied by BIPRU 4.10.47 R must address the payout structure of the credit derivative and conservatively assess the impact this has on the level and timing of recoveries. A firm must consider the extent to which other forms of residual risk remain.[Note: BCD Annex VII Part 4 point 104]
BIPRU 4.10.49RRP
(1) This rule relates to the calculation of risk-weighted exposure amounts and expected loss amounts in the case of unfunded credit protection.(2) BIPRU 5.7.21 R (Tranching) applies for the purpose in (1).(3) The provisions in (4) replace those in BIPRU 5.7.22 R to BIPRU 5.7.25 R (Calculating risk weighted exposure amounts under the standardised approach in the case of unfunded credit protection).(4) For the covered portion of the exposure value E3 (based on the adjusted value
BIPRU 4.10.50RRP
In addition to BIPRU 5.8.2 R, where there is a maturity mismatch the credit protection must not be recognised where the exposure is a short term exposure specified in the firm'sIRB permission as being subject to a one-day floor rather than a one-year floor in respect of the maturity value (M) under BIPRU 4.4.68 R.[Note: BCD Annex VIII Part 4 point 2(b)]
BIPRU 4.10.51RRP
GA as calculated under BIPRU 5.8.11 R is then taken as the value of the protection for the purposes of calculating the effects of unfunded credit protection under the IRB approach.[Note: BCD Annex VIII Part 4 point 8 (part)]
BIPRU 4.7.2RRP
The following exposures must be classed as equity exposures:(1) non-debt exposures conveying a subordinated, residual claim on the assets or income of the issuer; and(2) debt exposures the economic substance of which is similar to the exposures specified in (1).[Note:BCD Article 86(2)]
BIPRU 4.7.3RRP
Notwithstanding BIPRU 4.3.5 R (Relevant parameters), the calculation of risk weighted exposure amounts for credit risk for all exposures belonging to the equity exposureIRB exposure class must be calculated in accordance with one of the following ways:(1) the simple risk weight approach (see BIPRU 4.7.8 R;(2) the PD/LGD approach (see BIPRU 4.7.13 R); and(3) the internal models approach (see BIPRU 4.7.23 R);in accordance with BIPRU 4.7 and subject to the firm'sIRB permission.[Note:BCD
BIPRU 4.7.4RRP
Even if a firm'sIRB permission would otherwise permit the use of the internal models approach as referred to in BIPRU 4.7.3 R (3), it may only use that approach if it meets the minimum requirements in BIPRU 4.7.27 R - BIPRU 4.7.35 R.[Note:BCD Article 87(4) (part)]
BIPRU 4.7.5RRP
A firm may employ different approaches to different portfolios where the firm itself uses different approaches internally. A firm must, if it uses different approaches in accordance with the previous sentence, be able to demonstrate to the appropriate regulator that the choice is made consistently and is not determined by regulatory arbitrage considerations.[Note:BCD Annex VII Part 1 point 17]
BIPRU 4.7.6RRP
Notwithstanding BIPRU 4.7.5 R a firm may, if its IRB permission permits it to do so, attribute the risk weighted exposure amounts for equity exposures to ancillary services undertakings according to the treatment of non credit-obligation assets.[Note:BCD Annex VII Part 1 point 18]
BIPRU 4.7.7RRP
The exposure value must be the value presented in the financial statements. Admissible equity exposure measures are the following:(1) for investments held at fair value with changes in value flowing directly through income and into capital resources, the exposure value is the fair value presented in the balance sheet;(2) for investments held at fair value with changes in value not flowing through income but into a tax-adjusted separate component of equity, the exposure value is
BIPRU 4.7.9RRP
The risk weighted exposure amounts must be calculated according to the following formula:risk-weighted exposure amounts = RW * exposure value;where:(1) risk weight (RW) = 190% for private equity exposures in sufficiently diversified portfolios;(2) risk weight (RW) = 290% for exchange traded equity exposures; and(3) risk weight (RW) = 370% for all other equity exposures.[Note:BCD Annex VII Part 1 point 19]
BIPRU 4.7.10RRP
Short cash positions and derivative instruments held in the non-trading book are permitted to offset long positions in the same individual stocks provided that these instruments have been explicitly designated as hedges of specific equity exposures and that they provide a hedge for at least another year. Other short positions must be treated as if they are long positions with the relevant risk weight assigned to the absolute value of each position. In the context of maturity mismatched
BIPRU 4.7.11RRP
A firm may recognise unfunded credit protection obtained on an equity exposure in accordance with the methods set out in BIPRU 5 (Credit risk mitigation), as modified by BIPRU 4.10.[Note:BCD Annex VII Part 1 point 21]
BIPRU 4.7.12RRP
The expected loss amounts1 for equity exposures must be calculated according to the following formula:(1) expected loss amount = EL × exposure value; and(2) the EL values must be the following:(a) expected loss (EL) = 0.8% for private equity exposures in sufficiently diversified portfolios;(b) expected loss (EL) = 0.8% for exchange traded equity exposures; and(c) expected loss (EL) = 2.4% for all other equity exposures.[Note:BCD Annex VII Part 1 point 32]
BIPRU 4.7.14RRP
The risk weighted exposure amounts must be calculated according to the formulas in BIPRU 4.4.58 R (Risk weighted exposure amounts for sovereigns, institutions and corporates). If a firm does not have sufficient information to use the definition of default a scaling factor of 1.5 must be assigned to the risk weights.[Note:BCD Annex VII Part 1 point 22]
BIPRU 4.7.15RRP
At the individual exposure level the sum of the expected loss amount multiplied by 12.5 and the risk weighted exposure amount must not exceed the exposure value multiplied by 12.5.[Note:BCD Annex VII Part 1 point 23]
BIPRU 4.7.16RRP
A firm may recognise unfunded credit protection obtained on an equity exposure in accordance with the methods set out in BIPRU 5 (Credit risk mitigation) as modified by BIPRU 4.10. This must be subject to an LGD of 90% on the exposure to the provider of the hedge. For private equity exposures in sufficiently diversified portfolios an LGD of 65% may be used.[Note:BCD Annex VII Part 1 point 24]
BIPRU 4.7.17RRP
The expected loss amounts for equity exposures must be calculated according to the following formulae:(1) expected loss (EL) = PD × LGD; and(2) expected loss amount = EL × exposure value.[Note:BCD Annex VII Part 1 point 33]
BIPRU 4.7.18RRP
PDs must be determined according to the methods for corporate exposures. The following minimum PDs must be applied:(1) 0.09% for exchange traded equity exposures where the investment is part of a long-term customer relationship;(2) 0.09% for non-exchange traded equity exposures where the returns on the investment are based on regular and periodic cash flows not derived from capital gains;(3) 0.40% for exchange traded equity exposures including other short positions as set out
BIPRU 4.7.20RRP
Private equity exposures in sufficiently diversified portfolios may be assigned an LGD of 65%.[Note:BCD Annex VII Part 2 point 25]
BIPRU 4.7.21RRP
All other exposures must be assigned an LGD of 90%.[Note:BCD Annex VII Part 2 point 26]
BIPRU 4.7.22RRP
M (maturity) assigned to all exposures must be 5 years.[Note:BCD Annex VII Part 2 point 27]
BIPRU 4.7.24RRP
The risk weighted exposure amount is the potential loss on the firm'sequity exposures as derived using internal value-at-risk models subject to the 99th percentile, one-tailed confidence interval of the difference between quarterly returns and an appropriate risk-free rate computed over a long-term sample period, multiplied by 12.5. The risk weighted exposure amounts at the equity exposure portfolio2 level must not be less than the total of the sums2 of the minimum risk weighted
BIPRU 4.7.25RRP
A firm may recognise unfunded credit protection obtained on an equityposition.[Note:BCD Annex VII Part 1 point 26]
BIPRU 4.7.26RRP
The expected loss amounts for equity exposures under the internal models approach must be 0%.[Note:BCD Annex VII Part 1 point 34]
BIPRU 4.7.27RRP
(1) A firm must meet the standards set out in (2) to (9) for the purpose of calculating capital requirements.(2) The estimate of potential loss must be robust to adverse market movements relevant to the long-term risk profile of the firm's specific holdings. The data used to represent return distributions must reflect the longest sample period for which data is available and be meaningful in representing the risk profile of the firm's specific equity exposures. The data used must
BIPRU 4.7.28RRP
(1) With regard to the development and use of internal models for capital requirement purposes, a firm must establish policies, procedures, and controls to ensure the integrity of the model and modelling process. These policies, procedures, and controls must include the ones set out in the rest of this paragraph.(2) There must be full integration of the internal model into the overall management information systems of the firm and in the management of the non-trading bookequity
BIPRU 4.7.29RRP
A firm must have a robust system in place to validate the accuracy and consistency of its internal models and modelling processes. All material elements of the internal models and the modelling process and validation must be documented.[Note:BCD Annex VII Part 4 point 117]
BIPRU 4.7.30RRP
A firm must use the internal validation process to assess the performance of its internal models and processes in a consistent and meaningful way.[Note:BCD Annex VII Part 4 point 118]
BIPRU 4.7.31RRP
The methods and data used for quantitative validation must be consistent through time. Changes in estimation and validation methods and data (both data sources and periods covered) must be documented.[Note:BCD Annex VII Part 4 point 119]
BIPRU 4.7.32RRP
A firm must regularly compare actual equity exposure returns (computed using realised and unrealised gains and losses) with modelled estimates. Such comparisons must make use of historical data that cover as long a period as possible. A firm must document the methods and data used in such comparisons. This analysis and documentation must be updated at least annually.[Note:BCD Annex VII Part 4 point 120]
BIPRU 4.7.33RRP
A firm must make use of other quantitative validation tools and comparisons with external data sources. The analysis must be based on data that are appropriate to the portfolio, are updated regularly, and cover a relevant observation period. A firm's internal assessments of the performance of its models must be based on as long a period as possible.[Note:BCD Annex VII Part 4 point 121]
BIPRU 4.7.34RRP
A firm must have sound internal standards for situations where comparison of actual equity exposure returns with the models' estimates calls the validity of the estimates or of the models as such into question. These standards must take account of business cycles and similar systematic variability in equity exposure returns. All adjustments made to internal models in response to model reviews must be documented and consistent with the firm's model review standards.[Note:BCD Annex
BIPRU 4.7.35RRP
The internal model and the modelling process must be documented, including the responsibilities of parties involved in the modelling, and the model approval and model review processes.[Note:BCD Annex VII Part 4 point 123]
BIPRU 4.6.2RRP
To be eligible to be treated as a retail exposure, exposures must meet the following criteria:(1) they must be either to an individual person or persons, or to a small or medium sized entity, provided in the latter case that the total amount owed to the firm and parent undertaking and its subsidiary undertakings, including any past due exposure, by the obligor client or group of connected clients, but excluding claims or contingent claims secured on residential real estate collateral,
BIPRU 4.6.3RRP
The present value of retail minimum lease payments is eligible to be treated as a retail exposure.[Note:BCD Article 86(4) (part)]
BIPRU 4.6.6RRP
Rating systems must reflect both obligor and transaction risk, and must capture all relevant obligor and transaction characteristics.[Note:BCD Annex VII Part 4 point 13]
BIPRU 4.6.7RRP
The level of risk differentiation must ensure that the number of exposures in a given grade or pool is sufficient to allow for meaningful quantification and validation of the loss characteristics at the grade or pool level. The distribution of exposures and obligors across grades or pools must be such as to avoid excessive concentrations.[Note:BCD Annex VII Part 4 point 14]
BIPRU 4.6.9RRP
A firm must be able to demonstrate to the appropriate regulator that the process of assigning exposures to grades or pools provides for a meaningful differentiation of risk, provides for a grouping of sufficiently homogenous exposures, and allows for accurate and consistent estimation of loss characteristics at grade or pool level.[Note:BCD Annex VII Part 4 point 15 (part)]
BIPRU 4.6.11RRP
(1) A firm must consider the following risk drivers when assigning exposures to grades or pools:(a) obligor risk characteristics;(b) transaction risk characteristics, including product or collateral types or both; and(c) delinquency.(2) In the case of (1)(b) a firm must explicitly address cases where several exposures benefit from the same collateral.(3) However:(a) a firm need not consider delinquency if this is compatible with its IRB permission; and(b) (in the case of a firm
BIPRU 4.6.12RRP
Each exposure must be assigned to a grade or a pool as part of the credit approval process.[Note:BCD Annex VII Part 4 point 24]
BIPRU 4.6.14RRP
A firm must at least annually update obligor and facility assignments or review the loss characteristics and delinquency status of each identified risk pool whichever is applicable. A firm must also at least annually review in a representative sample the status of individual exposures within each pool as a means of ensuring that exposures continue to be assigned to the correct pool.[Note:BCD Annex VII Part 4 point 29]
BIPRU 4.6.18RRP
In addition to complying with BIPRU 4.3.54 R (Data maintenance) a firm must collect and store:(1) data used in the process of allocating exposures to grades or pools;(2) data on the estimated PDs, LGDs and conversion factors associated with grades or pools of exposures;(3) the identity of obligors and exposures that defaulted;(4) for defaultedexposures, data on the grades or pools to which the exposure was assigned over the year prior to default and the realised outcomes on LGD
BIPRU 4.6.20RRP
(1) This rule, in accordance with BIPRU 4.3.57 R (4) (Definition of default), sets the exact number of days past due that a firm must abide by in the case of retail exposures.(2) For retail exposures to counterparts situated within the United Kingdom the number of days past due is 180 days with the exception of retail SME exposures. For these exposures the number is 90 days.(3) For retail exposures to counterparts situated in another EEA State the number of days past due is the
BIPRU 4.6.21RRP
A firm may apply the definition of default at a facility level.[Note:BCD Annex VII Part 4 point 44 (part)]
BIPRU 4.6.24RRP
A firm must estimate PDs by obligor grade or pool from long run averages of one-year default rates.[Note:BCD Annex VII Part 4 point 67]
BIPRU 4.6.26RRP
A firm must regard internal data for assigning exposures to grades or pools as the primary source of information for estimating loss characteristics. A firm may use external data (including pooled data) or statistical models for quantification provided a strong link can be demonstrated between:(1) the firm's process of assigning exposures to grades or pools and the process used by the external data source; and(2) the firm's internal risk profile and the composition of the external
BIPRU 4.6.27RRP
If a firm derives long run average estimates of PD and LGD for retail exposures from an estimate of total losses, and an appropriate estimate of PD or LGD, the process for estimating total losses must meet the minimum IRB standards1 for estimation of PD and LGD, and the outcome must be consistent with the concept of LGD as set out in BIPRU 4.3.99 R (Default weighted average).[Note:BCD Annex VII Part 4 point 70]
BIPRU 4.6.28RRP
Irrespective of whether a firm is using external, internal, pooled data sources or a combination of the three, for its estimation of loss characteristics, the length of the underlying historical observation period used must be at least five years for at least one source. If the available observation spans a longer period for any source, and these data are relevant, this longer period must be used. However:(1) a firm need not give equal importance to historic data if this is compatible
BIPRU 4.6.29RRP
A firm may have, when implementing the IRB approach, relevant data covering a period of two years. The period to be covered must increase by one year each year until relevant data covers a period of five years.[Note:BCD Annex VII Part 4 point 71 (part)]
BIPRU 4.6.30RRP
A firm must identify and analyse expected changes of risk parameters over the life of credit exposures (seasoning effects).[Note:BCD Annex VII Part 4 point 72]
BIPRU 4.6.31RRP
Notwithstanding BIPRU 4.3.99 R (Default weighted average), LGD estimates may be derived from realised losses and appropriate estimates of PDs.[Note:BCD Annex VII Part 4 point 83]
BIPRU 4.6.32RRP
Notwithstanding BIPRU 4.3.128 R (Additional drawings), a firm may reflect future drawings either in its conversion factor or in its LGD estimates.[Note:BCD Annex VII Part 4 point 84]
BIPRU 4.6.33RRP
Estimates of LGD must be based on data over a minimum of five years. Notwithstanding BIPRU 4.3.99 R (Default weighted average):(1) a firm need not give equal importance to historic data if this is permitted by its IRB permission; and(2) (in the case of a firm with an IRB permission that permits this treatment of historic data) the firm must be able to convince the appropriate regulator that more recent data is a better predictor of loss rates.[Note:BCD Annex VII Part 4 point 86
BIPRU 4.6.34RRP
A firm may have, when it implements the IRB approach, relevant data covering a period of two years. The period to be covered must increase by one year each year until relevant data covers a period of five years.[Note:BCD Annex VII Part 4 point 86 (part)]
BIPRU 4.6.37RRP
Notwithstanding BIPRU 4.3.128 R (Additional drawings), a firm may reflect future drawings either in its conversion factors or in its LGD estimates.[Note:BCD Annex VII Part 4 point 94]
BIPRU 4.6.38RRP
Estimates of conversion factors must be based on data over a minimum of five years. Notwithstanding BIPRU 4.3.125 R:(1) a firm need not give equal importance to historic data if this is permitted by its IRB permission; and(2) (in the case of a firm with an IRB permission that permits this treatment of historic data) the firm must be able to convince the appropriate regulator if asked that more recent data is a better predictor of loss rates.[Note:BCD Annex VII Part 4 point 95
BIPRU 4.6.39RRP
A firm may have, when it implements the IRB approach, relevant data covering a period of two years. The period to be covered must increase by one year each year until relevant data cover a period of five years.[Note:BCD Annex VII Part 4 point 95 (part)]
BIPRU 4.6.41RRP
Subject to BIPRU 4.6.43 R and BIPRU 4.6.44 R, the risk weighted exposure amounts for retail exposures must be calculated according to the formulae in the table in BIPRU 4.6.42 R.[Note:BCD Annex VII Part 1 point 10 1st sentence]
BIPRU 4.6.42RRP
Table: Risk weighted exposure amounts for retail exposuresThis table belongs to BIPRU 4.6.41 RCorrelation (R)0.03 × (1 - EXP(-35*PD))/(1-EXP(-35)) + 0.16*[1-(1-EXP(-35*PD))/(1-EXP(-35))]Risk weight (RW)(LGD*N[(1-R)-0.5*G(PD)+(R/(1-R))0.5 *G(0.999)]-PD*LGD)* 12.5*1.06N(x)denotes the cumulative distribution function for a standard normal random variable (i.e. the probability that a normal random variable with mean zero and variance of one is less than or equal to x).G(z)denotes
BIPRU 4.6.43RRP
For retail exposures secured by real estate collateral a correlation (R) of 0.15 must replace the correlation formula in the table in BIPRU 4.6.42 R.[Note:BCD Annex VII Part 1 point 12]
BIPRU 4.6.44RRP
(1) For qualifying revolving retail exposures a correlation (R) of 0.04 must replace the correlation formula in the table in BIPRU 4.6.42 R.(2) Retail exposures qualify as qualifying revolving retail exposures if they meet the following conditions:(a) the IRB permission of the firm in question does not disapply this paragraph;(b) the exposures are to individuals;(c) the exposures are revolving, unsecured, and, to the extent they are not drawn, immediately and unconditionally cancellable
BIPRU 4.6.47RRP
Expected loss amounts must be calculated according to the formulae in the table in BIPRU 4.6.48 R.[Note:BCD Annex VII Part 1 point 30 (part)]
BIPRU 4.6.48RRP
Table: Formulae for the calculation of expected loss amountsThis table belongs to BIPRU 4.6.47 RExpected loss (EL)equals PD×LGDExpected loss amountequals EL×exposure valueFor defaultedexposures (PD = 1) where a firm uses its own estimates of LGDs, EL must be ELBE, the firm's best estimate of expected loss for the defaultedexposure according to BIPRU 4.3.122 R.For exposures subject to the treatment set out in BIPRU 4.4.79 R (Double default) EL must be 0.[Note:BCD Annex VII Part
BIPRU 4.6.49RRP
A firm must provide its own estimates of PDs in accordance with its IRB permission and the minimum IRB standards.[Note: BCD Article 87(6) (part)]
BIPRU 4.6.50RRP
The PD of an exposure must be at least 0.03%.[Note:BCD Annex VII Part 2 point 17]
BIPRU 4.6.52RRP
Unfunded credit protection may be recognised by adjusting PDs subject to BIPRU 4.6.54 R. For dilution risk, where a firm does not use its own estimates of LGDs, this must be subject to compliance with BIPRU 5 (Credit risk mitigation) modified by BIPRU 4.10 and, for this purpose, a firm may recognise unfunded credit protection providers other than those indicated in the CRM eligibility conditions provided the firm is able to demonstrate that the unfunded protection provider giving
BIPRU 4.6.53RRP
A firm must provide its own estimates of LGDs in accordance with its IRB permission and the minimum IRB standards.[Note: BCD Article 87(7) (part)]
BIPRU 4.6.54RRP
Unfunded credit protection may be recognised as eligible by adjusting PD or LGD estimates subject to the minimum IRB standards as specified in BIPRU 4.10.43 R - BIPRU 4.10.48 R and in accordance with the IRB permission either in support of an individual exposure or a pool of exposures. A firm must not assign guaranteed exposures an adjusted PD or LGD such that the adjusted risk weight would be lower than that of a comparable, direct exposure to the guarantor.[Note:BCD Annex VII
BIPRU 4.6.56RRP
A firm must provide its own estimates of conversion factors in accordance with its IRB permission and the minimum IRB standards.[Note: BCD Article 87(7) (part)]
BIPRU 4.6.57RRP
The risk weighted exposure amount for each exposure to retail SME as defined in BIPRU 4.6.2 R which meets the requirements set out in BIPRU 4.4.83 R and BIPRU 4.4.85 R may be calculated according to BIPRU 4.4.79 R (Double default).[Note:BCD Annex VII Part 1 point 11]
BIPRU 4.6.58RRP
Notwithstanding BIPRU 4.6.54 R for the purposes of BIPRU 4.4.80 R the LGD of a comparable direct exposure to the protection provider must either be the LGD associated with an unhedged facility to the guarantor or the unhedged facility of the obligor, depending upon whether in the event both the guarantor and obligor default during the life of the hedged transaction available evidence and the structure of the guarantee indicate that the amount recovered would depend on the financial
BIPRU 9.13.1RRP
Where there is a securitisation of revolving exposures subject to an early amortisation provision, the originator must calculate an additional risk weighted exposure amount in accordance with this section in respect of the risk that the levels of credit risk to which it is exposed may increase following the operation of the early amortisation provision. Accordingly this section sets out how an originator must calculate a risk weighted exposure amount when it sells revolving exposures
BIPRU 9.13.2RRP
A firm must calculate a risk weighted exposure amount in respect of the sum of the originators interest and the investors interest.[Note:BCD Annex IX Part 4 point 17]
BIPRU 9.13.3RRP
For securitisation structures where the securitised exposures comprise revolving exposures and non-revolving exposures, an originator must apply the treatment set out in this section to that portion of the underlying pool containing revolving exposures.[Note:BCD Annex IX Part 4 point 18]
BIPRU 9.13.4RRP
For the purposes of this section, subject to BIPRU 9.13.6 R:(1) originators interest means the exposure value of that notional part of a pool of drawn amounts sold into a securitisation, the proportion of which in relation to the amount of the total pool sold into the structure determines the proportion of the cash-flows generated by principal and interest collections and other associated amounts which are not available to make payments to those having securitisation positions
BIPRU 9.13.5RRP
Subject to BIPRU 9.13.7 R, the exposure of the originator associated with its rights in respect of the originators interest must not be treated as a securitisation position but as a pro rata exposure to the securitised exposures as if they had not been securitised.[Note:BCD Annex IX Part 4 point 20]
BIPRU 9.13.6RRP
(1) For firms using the IRB approach set out in BIPRU 4, this paragraph applies in place of BIPRU 9.13.4 R.(2) For the purposes of this section, originators interest means the sum of:(a) the exposure value of that notional part of a pool of drawn amounts sold into a securitisation, the proportion of which in relation to the amount of the total pool sold into the structure determines the proportion of the cash-flows generated by principal and interest collections and other associated
BIPRU 9.13.7RRP
For firms using the IRB approach set out in BIPRU 4, this paragraph applies in place of BIPRU 9.13.5 R. The exposure of the originator associated with its rights in respect of that part of the originators interest described in BIPRU 9.13.6 R (2)(a) must not be treated as a securitisation position but as a pro rata exposure to the securitised drawn amounts as if they had not been securitised in an amount equal to that described in BIPRU 9.13.6 R (2)(a). The originator must also
BIPRU 9.13.8RRP
Originators of the following types of securitisation are exempt from the capital requirement in BIPRU 9.13.1 R:(1) securitisations of revolving exposures whereby investors remain fully exposed to all future draws by borrowers so that the risk on the underlying facilities does not return to the originator even after an early amortisation event has occurred; and(2) securitisations where any early amortisation provision is solely triggered by events not related to the performance
BIPRU 9.13.9RRP
For an originator subject to the capital requirement in BIPRU 9.13.1 R the total of the risk weighted exposure amounts in respect of its positions in the investors interest (as defined in BIPRU 9.13.4 R or BIPRU 9.13.6 R) and the risk weighted exposure amounts calculated under BIPRU 9.13.1 R must be no greater than the greater of:(1) the risk weighted exposure amounts calculated in respect of its positions in the investors interest (as so defined); and(2) the risk weighted exposure
BIPRU 9.13.10RRP
Deduction of net gains, if any, arising from the capitalisation of future income required under GENPRU 2.2.90 R (Core tier one capital: profit and loss account and other reserves: Securitisation) must be treated outside the maximum amount indicated in BIPRU 9.13.9 R.[Note:BCD Annex IX Part 4 point 23]
BIPRU 9.13.11RRP
The risk weighted exposure amount to be calculated in accordance with BIPRU 9.13.1 R must be determined by multiplying the amount of the investors interest (as defined in BIPRU 9.13.4 R or BIPRU 9.13.6 R) by the product of:(1) the appropriate conversion figure as indicated in BIPRU 9.13.16 R, BIPRU 9.13.19 R or BIPRU 9.13.20 R; and(2) the weighted average risk weight that would apply to the securitised exposures if the exposures had not been securitised.[Note:BCD Annex IX Part
BIPRU 9.13.12RRP
An early amortisation provision must be treated as controlled for the purposes of this section where the following conditions are met:(1) the originator has an appropriate capital/liquidity plan in place to ensure that it has sufficient capital and liquidity available in the event of an early amortisation;(2) throughout the duration of the transaction there is a pro rata sharing between the originators interest and the investors interest (as defined in BIPRU 9.13.4 R or BIPRU
BIPRU 9.13.13RRP
In the case of a securitisation meeting the following conditions:(1) it is subject to an early amortisation provision;(2) the securitisation is of retail exposures which are uncommitted and unconditionally cancellable without prior notice; and(3) the early amortisation is triggered by the excess spread level falling to a specified levela firm must, to calculate the appropriate conversion figure referred to in BIPRU 9.13.11 R, compare the three-month average excess spread level
BIPRU 9.13.14RRP
Where the securitisation does not require excess spread to be trapped, the trapping point is deemed to be 4.5 percentage points greater than the excess spread level at which an early amortisation is triggered.[Note:BCD Annex IX Part 4 point 27]
BIPRU 9.13.15RRP
The conversion figure to be applied must be determined by the level of the actual three month average excess spread in accordance with BIPRU 9.13.16 R.[Note:BCD Annex IX Part 4 point 28]
BIPRU 9.13.17RRP
In BIPRU 9.13.16 R:(1) Level A means levels of excess spread less than 133.33% of the trapping level of excess spread but not less than 100% of that trapping level;(2) Level B means levels of excess spread less than 100% of the trapping level of excess spread but not less than 75% of that trapping level;(3) Level C means levels of excess spread less than 75% of the trapping level of excess spread but not less than 50% of that trapping level;(4) Level D means levels of excess spread
BIPRU 9.13.18GRP
In the case of a securitisation meeting the conditions in this paragraph, a firm may apply to the appropriate regulator for a waiver that would allow a treatment which approximates closely to that prescribed in BIPRU 9.13.13 R to BIPRU 9.13.17 R for determining the conversion figure indicated. If a firm wants such a waiver, it should satisfy the appropriate regulator that:(1) the securitisation is subject to an early amortisation provision of retail exposures;(2) those retail
BIPRU 9.13.19RRP
All other securitisations subject to a controlled early amortisation provision of revolving exposures are subject to a credit conversion figure of 90%.[Note:BCD Annex IX Part 4 point 32]
BIPRU 9.13.20RRP
All other securitisations subject to a non-controlled early amortisation provision of revolving exposures are subject to a credit conversion figure of 100%.[Note:BCD Annex IX Part 4 point 33]
BIPRU 9.13.21RRP
A firm which is an originator of a revolving securitisation transaction involving early amortisation provisions should have liquidity plans to address the implications of both scheduled and early amortisation.[Note:BCD Annex V point 9]
BIPRU 13.5.1RRP
A firm may use the CCR standardised method only for financial derivative instruments and long settlement transactions.[Note: BCD Annex III Part 5 point 1 (part)]
BIPRU 13.5.2RRP
(1) When a financial derivative instrument transaction with a linear risk profile stipulates the exchange of a financial instrument for a payment, the payment Part is referred to as the payment leg.(2) Transactions that stipulate the exchange of payment against payment consist of two payment legs.(3) The payment legs consist of the contractually agreed gross payments, including the notional amount of the transaction.(4) A firm may disregard the interest rate risk from payment
BIPRU 13.5.3RRP
(1) Transactions with a linear risk profile with equities (including equity indices), gold, other precious metals or other commodities as the underlying financial instruments must be mapped to a risk position in the respective equity (or equity index) or commodity (including gold and other precious metals) and an interest rate risk position for the payment leg.(2) If the payment leg is denominated in a foreign currency, it must be additionally mapped to a risk position in the
BIPRU 13.5.4RRP
(1) Transactions with a linear risk profile with a debt instrument as the underlying instrument must be mapped to an interest rate risk position for the debt instrument and another interest rate risk position for the payment leg.(2) Transactions with a linear risk profile that stipulate the exchange of payment against payment, including foreign exchange forwards, must be mapped to an interest rate risk position for each of the payment legs.(3) If the underlying debt instrument
BIPRU 13.5.6RRP
This table belongs to BIPRU 13.5.5 R.Transaction or instrumentCalculation of size of risk positionTransaction with linear risk profile except for debt instruments.The effective notional value (market price multiplied by quantity) of the underlying financial instruments (including commodities) converted to the firm's domestic currency.Debt instruments and payment legs.The effective notional value of the outstanding gross payments (including the notional amount) converted to the
BIPRU 13.5.7RRP
A firm may use the following formulae to determine the size and sign of a risk position:(1) for all instruments other than debt instruments:effective notional value, or delta equivalentnotional value = pref((V)/(p))where:(a) Pref = price of the underlying instrument, expressed in the reference currency;(b) V = value of the financial instrument (in the case of an option this is the option price; in the case of a transaction with a linear risk profile this is the value of the underlying
BIPRU 13.5.8RRP
For the determination of risk positions, a firm must treat collateral received from a counterparty like a claim on the counterparty under a derivative contract (long position) that is due today, while collateral posted must be treated as an obligation to the counterparty (short position) that is due today.[Note: BCD Annex III Part 5 point 10]
BIPRU 13.5.9RRP
A firm must apply the CCR mark to market method to transactions with a non-linear risk profile or for payment legs and transactions with debt instruments as underlying if:(1) the firm does not have a CAD 1 model permission or a VaR model permission; or(2) where the firm does have a CAD 1 model permission or a VaR model permission but cannot determine the delta or the modified duration, respectively, with its CAD 1 model permission or VaR model permission.[Note: BCD Annex III Part
BIPRU 13.5.10RRP
A firm must not recognise netting for the purpose of applying the CCR mark to market method to an exposure treated under BIPRU 13.5.9 R (that is, the exposure value must be determined as if there were a netting set that comprises just the individual transaction).[Note: BCD Annex III Part 5 point 19 (part)]
BIPRU 13.5.11RRP
A firm must group the risk positions into hedging sets and, for each hedging set, compute the absolute value amount of the sum of the resulting risk positions. This sum is termed the net risk position and is represented by:((i)(RPTij) - (l)(RPClj))in the formulae set out in BIPRU 13.5.24 R.[Note: BCD Annex III Part 5 point 12]
BIPRU 13.5.12RRP
For interest rate risk positions from money deposits received from the counterparty as collateral, from payment leg and from underlying debt instruments, to which according to the table in BIPRU 7.2.44R1 a capital charge of 1.60% or less applies, there are six hedging sets for each currency, as set out in the table in BIPRU 13.5.13 R. Hedging sets are defined by a combination of the criteria maturity and referenced interest rates.[Note: BCD Annex III Part 5 point 13]
BIPRU 13.5.13RRP
This table belongs to BIPRU 13.5.12 R:Government referenced interest ratesNon-government referenced interest ratesMaturity<= 1 year<= 1 yearMaturity>1 <= 5 years>1 <= 5 yearsMaturity> 5 years> 5 years[Note: BCD Annex III Part 5 Table 4]
BIPRU 13.5.14RRP
For interest rate risk positions from underlying debt instruments or payment legs for which the interest rate is linked to a reference interest rate that represents a general market interest level, the remaining maturity is the length of the time interval up to the next re-adjustment of the interest rate. In all other cases, it is the remaining life of the underlying debt instrument, or in the case of a payment leg the remaining life of the transaction.[Note: BCD Annex III Part
BIPRU 13.5.15RRP
There is one hedging set for each issuer of a reference debt instrument that underlies a credit default swap.Nth to default basket credit default swaps must be treated as follows:2(1) 2the size of a risk position in a reference debt instrument in a basket underlying an nth to default credit default swap is the effective notional value of the reference debt instrument, multiplied by the modified duration of the nth to default derivative, with respect to a change in the credit spread
BIPRU 13.5.16RRP
Underlying financial instruments other than debt instruments must be assigned by a firm to the same respective hedging sets only if they are identical or similar instruments. In all other cases a firm must assign them to separate hedging sets.[Note: BCD Annex III Part 5 point 17 (part)]
BIPRU 13.5.17RRP
(1) The similarity of instruments for the purposes of BIPRU 13.5.16 R is established in accordance with (2) to (5).(2) For equities, similar instruments are those of the same issuer. An equity index is treated as a separate issuer.(3) For precious metals, similar instruments are those of the same metal. A precious metal index is treated as a separate precious metal.(4) For electric power, similar instruments are those delivery rights and obligations that refer to the same peak
BIPRU 13.5.18RRP
(1) For interest rate risk positions from money deposits that are posted with a counterparty as collateral when that counterparty does not have debt obligations of low specific risk outstanding and from underlying debt instruments, to which according to the table in BIPRU 7.2.44 R1 a capital charge of more than 1.60% applies, there is one hedging set for each issuer.(2) When a payment leg emulates such a debt instrument, there is also one hedging set for each issuer of the reference
BIPRU 13.5.19RRP
A firm that makes use of collateral to mitigate its CCR must have internal procedures to verify that, prior to recognising the effect of collateral in its calculations, the collateral meets the legal certainty standards set out in BIPRU 5 modified, where relevant, by BIPRU 4.10.[Note: BCD Annex III Part 5 point 21]
BIPRU 13.5.20RRP
A firm must have internal procedures to verify that, prior to including a transaction in a hedging set, the transaction is covered by a legally enforceable netting contract that meets the requirements set out in BIPRU 13.7.[Note: BCD Annex III Part 5 point 20]
BIPRU 13.5.21RRP
A firm must apply the CCR multipliers for the different hedging set categories according to the Table in BIPRU 13.5.22 R.[Note: BCD Annex III Part 5 point 18]
BIPRU 13.5.22RRP
This table belongs to BIPRU 13.5.21 R.Hedging set categoriesCCR Multiplier (CCRM)(1)Interest Rates0.2%(2)Interest Rates for risk positions from a reference debt instrument that underlies a credit default swap and to which a capital charge of 1.60%, or less, applies under BIPRU 7.2.44 R1.0.3%(3)Interest Rates for risk positions from a debt instrument or reference debt instrument to which a capital charge of more than 1.60% applies under BIPRU 7.2.44 R.0.6%(4)Exchange Rates2.5%(5)Electric
BIPRU 13.5.24RRP
A firm must calculate the exposure value separately for each netting set.[Note: BCD Annex III Part 5 point 1, second sentence]
BIPRU 13.5.25RRP
A firm must determine the exposure value net of collateral, as follows:exposure value = *max(CMV-CMC;(j)((i)(RPTij)-(l)(RPClj))*CCRMj)where:CMV = current market value of the portfolio of transactions within the netting set with a counterparty gross of collateral.That is, where:CMV = (i)(CMVi)where:CMVi = the current market value of transaction i;CMC = the current market value of the collateral assigned to the netting set.That is, where:CMC = (l)(CMCl)whereCMCl = the current market
BIPRU 13.5.26RRP
Collateral received from a counterparty has a positive sign; collateral posted to a counterparty has a negative sign.[Note: BCD Annex III Part 5 point 1 (part)]
BIPRU 13.5.27RRP
A firm may only recognise collateral for this method if it is collateral that is eligible under BIPRU 5.4.8 R1 and BIPRU 14.2.12 G to BIPRU 14.2.13 R.[Note: BCD Annex III Part 5 point 1 (part)]
BIPRU 5.6.1RRP
(1) For a firm adopting the financial collateral comprehensive method, the effects of bilateral netting contracts covering repurchase transactions, securities or commodities lending or borrowing transactions, and/or other capital market-driven transactions with a counterparty may be recognised.(2) Without prejudice to BIPRU 14 to be recognised the collateral taken and securities or commodities borrowed within such agreements must comply with the eligibility requirements for collateral
BIPRU 5.6.2RRP
For master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions1 to be recognised for the purposes of BIPRU 5, they must:(1) be legally effective and enforceable in all relevant jurisdictions, including in the event of the bankruptcy or insolvency of the counterparty;(2) give the non-defaulting party the right to terminate and close-out in a timely manner all transactions
BIPRU 5.6.3RRP
In addition the minimum requirements for the recognition of financial collateral under the financial collateral comprehensive method set out in BIPRU 5.4.9 R must be fulfilled.[Note:BCD Annex VIII Part 2 point 5]
BIPRU 5.6.5RRP
In calculating the 'fully adjusted exposure value' (E*) for the exposures subject to an eligible master netting agreement covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions, a firm must calculate the volatility adjustments to be applied in the manner set out in BIPRU 5.6.6 R to BIPRU 5.6.11 R either using the supervisory volatility adjustments approach or the own estimates of volatility
BIPRU 5.6.6RRP
A firm must calculate the net position in each type of security or commodity by subtracting from the total value of the securities or commodities of that type lent, sold or provided under the master netting agreement, the total value of securities or commodities of that type borrowed, purchased or received under the agreement.[Note:BCD Annex VIII Part 3 point 6]
BIPRU 5.6.7RRP
For the purposes of BIPRU 5.6.6 R, type of security means securities which are issued by the same entity, have the same issue date, the same maturity and are subject to the same terms and conditions and are subject to the same liquidation periods as indicated in BIPRU 5.4.30 R to BIPRU 5.4.65 R.[Note: BCD Annex VIII Part 3 point 7]
BIPRU 5.6.8RRP
A firm must calculate the net position in each currency other than the settlement currency of the master netting agreement by subtracting from the total value of securities denominated in that currency lent, sold or provided under the master netting agreement added to the amount of cash in that currency lent or transferred under the agreement, the total value of securities denominated in that currency borrowed, purchased or received under the agreement added to the amount of cash
BIPRU 5.6.9RRP
A firm must apply the volatility adjustment appropriate to a given type of security or cash position to the absolute value of the positive or negative net position in the securities of that type.[Note: BCD Annex VIII Part 3 point 9]
BIPRU 5.6.10RRP
A firm must apply the foreign exchange risk (fx) volatility adjustment to the net positive or negative position in each currency other than the settlement currency of the master netting agreement.[Note: BCD Annex VIII Part 3 point 10]
BIPRU 5.6.11RRP
E* must be calculated according to the following formula:E* = max {0, [(∑(E) -∑ (C)) + ∑ (|net position in each security| x Hsec) + (∑|Efx| x Hfx)]}where:(1) (where risk weighted exposure amounts are calculated under the standardised approach) E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection;(2) C is the value of the securities or commodities borrowed, purchased or received or the cash borrowed or received
BIPRU 5.6.15GRP
A firm which has been granted a VaR modelwaiver will still need to make an application to the appropriate regulator for a master netting agreement internal models approach permission. However, the application should generally be straightforward as a firm which is able to satisfy the requirements for a VaR modelwaiver should usually also be able to satisfy the requirements for a master netting agreement internal models approach permission.[Note: BCD Annex VIII Part 3 point 14]
BIPRU 5.6.16RRP
The master netting agreement internal models approach1 is an alternative to using the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach in calculating volatility adjustments for the purpose of calculating the 'fully adjusted exposure value' (E*) resulting from the application of an eligible master netting agreement covering repurchase transactions, securities or commodities lending or borrowing transactions and/or other capital
BIPRU 5.6.17RRP
A firm may also use the internal model used for the master netting agreement internal models approach1 for margin lending transactions if the transactions are covered under the firm'smaster netting agreement internal models approach permission and the transactions are covered by a bilateral master netting agreement that meets the requirements set out in BIPRU 13.7.[Note: BCD Annex VIII Part 3 point 12 (part)]
BIPRU 5.6.18RRP
A firm may use the master netting agreement internal models approach independently of the choice it has made between the standardised approach and the IRB approach for the calculation of risk weighted exposure amounts. However, if a firm uses the master netting agreement internal models approach, it must do so for all counterparties and securities, excluding immaterial portfolios where it may use the supervisory volatility adjustments approach or the own estimates of volatility
BIPRU 5.6.19RRP
(1) A firm must be able to satisfy the appropriate regulator that the firm's risk management system for managing the risks arising on the transactions covered by the master netting agreement is conceptually sound and implemented with integrity and that, in particular, the minimum qualitative standards in (2) - (11) are met.(2) The internal risk-measurement model used for calculation of potential price volatility for the transactions is closely integrated into the daily risk-management
BIPRU 5.6.20RRP
The calculation of the potential change in value must be subject to the following minimum standards:(1) at least daily calculation of the potential change in value;(2) a 99th percentile, one-tailed confidence interval;(3) a 5-day equivalent liquidation period, except in the case of transactions other than securities repurchase transaction or securities lending or borrowing transactions where a 10-day equivalent liquidation period should be used;(4) an effective historical observation
BIPRU 5.6.21RRP
The internal risk-measurement model must capture a sufficient number of risk factors in order to capture all material price risks.[Note: BCD Annex VIII Part 3 point 18]
BIPRU 5.6.22RRP
A firm may use empirical correlations within risk categories and across risk categories provided that it is able to satisfy the appropriate regulator that the firm's system for measuring correlations is sound and implemented with integrity.[Note: BCD Annex VIII Part 3 point 19]
BIPRU 5.6.24RRP
The fully adjusted exposure value (E*) for a firm using the master netting agreement internal models approach must be calculated according to the following formula:E* = max {0, [(∑E -∑C) + (VaR output of the internal models)]}where(1) (where risk weighted exposure amounts are calculated under the standardised approach) E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection;(2) C is the value of the securities
BIPRU 5.6.25RRP
In calculating risk weighted exposure amounts using the master netting agreement internal models approach, a firm must use the previous business day's model output.[Note: BCD Annex VIII Part 3 point 21]
BIPRU 5.6.29RRP
(1) A firm must under the standardised approach calculate risk weighted exposure amounts for repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions covered by master netting agreements under this rule.(2) E* as calculated under BIPRU 5.6.5 R to BIPRU 5.6.25 R must be taken as the exposure value of the exposure to the counterparty arising from the transactions subject to the master netting agreement
BIPRU 4.8.2GRP
Purchased receivables do not form an IRB exposure class on their own. For any purchased receivable, the provisions of the sections of BIPRU 4 that deal with the IRB exposure class to which it belongs also apply, as modified by this section.[Note: BCD Annex VII Part 4 point 15 (part)]
BIPRU 4.8.5RRP
The estimates for determining the risk parameters PD, LGD, conversion factor and EL must reflect all relevant information available to the purchasing firm regarding the quality of the underlying receivables, including data for similar pools provided by the seller, by the purchasing firm, or by external sources. The purchasing firm must evaluate any data relied upon which is provided by the seller.[Note: BCD Annex VII Part 4 point 53]
BIPRU 4.8.6RRP
With respect to BIPRU 4.6.26 R (Internal and external data for PD estimation: retail exposures) a firm may use external and internal reference data for PD estimation. A firm must use all relevant data sources as points of comparison.[Note: BCD Annex VII Part 4 point 69 (part)]
BIPRU 4.8.7RRP
For corporate exposure purchased receivables a firm may estimate ELs by obligor grade from long run averages of one-year realised default rates.[Note: BCD Annex VII Part 4 point 60]
BIPRU 4.8.8RRP
If a firm derives long run average estimates of PDs and LGDs for corporate exposure purchased receivables from an estimate of EL, and an appropriate estimate of PD or LGD, the process for estimating total losses must meet the overall standards for estimation of PD and LGD set out in the minimum IRB standards,2 and the outcome must be consistent with the concept of LGD as set out in BIPRU 4.3.99 R.[Note: BCD Annex VII Part 4 point 61]
BIPRU 4.8.9RRP
A firm may use external and internal reference data for its LGD estimates in the case of retail exposures that are purchased receivables.[Note: BCD Annex VII Part 4 point 85]
BIPRU 4.8.11RRP
The structure of the facility must ensure that under all foreseeable circumstances a firm has effective ownership and control of all cash remittances from the receivables. When the obligor makes payments directly to a seller or servicer a firm must verify regularly that payments are forwarded completely and within the contractually agreed terms. Servicer means an entity that manages a pool of purchased receivables or the underlying credit exposures on a day-to-day basis. A firm
BIPRU 4.8.12RRP
(1) A firm must monitor both the quality of the purchased receivables and the financial condition of the seller and servicer. In particular a firm must comply with the remaining provisions of this rule.(2) A firm must assess the correlation among the quality of the purchased receivables and the financial condition of both the seller and servicer, and have in place internal policies and procedures that provide adequate safeguards to protect against such contingencies, including
BIPRU 4.8.14RRP
A firm must have clear and effective policies and procedures governing the control of purchased receivables, credit, and cash. In particular, written internal policies must specify all material elements of the receivables purchase programme, including the advancing rates, eligible collateral, necessary documentation, concentration limits, and the way cash receipts are to be handled. These elements must take appropriate account of all relevant and material factors, including the
BIPRU 4.8.15RRP
A firm must have an effective internal process for assessing compliance with all internal policies and procedures. The process must include regular audits of all critical phases of the firm's receivables purchase programme, verification of the separation of duties between, firstly, the assessment of the seller and servicer and the assessment of the obligor and, secondly, between the assessment of the seller and servicer and the field audit of the seller and servicer and evaluations
BIPRU 4.8.16RRP
For its corporate exposure purchased receivables a firm must comply with the minimum requirements set out in BIPRU 4.8.11 R - BIPRU 4.8.15 R. For corporate exposure purchased receivables that comply in addition with the conditions set out in BIPRU 4.8.18 R, and where it would be unduly burdensome for a firm to use the risk quantification standards for corporate exposures as set out in the minimum IRB standards for these receivables, the risk quantification standards for retail
BIPRU 4.8.17RRP
For corporate exposure purchased receivables, refundable purchase discounts, collateral or partial guarantees that provide first-loss protection for defaultlosses, dilution losses, or both, may be treated as first-loss positions under the provisions in BIPRU 9 (Securitisation) about the IRB approach.[Note: BCD Annex VII Part 1 point 8]
BIPRU 4.8.18RRP
To be eligible for the retail exposure treatment purchased receivables must comply with the minimum requirements set out in BIPRU 4.8.11 R - BIPRU 4.8.15 R and the following conditions:(1) the firm has purchased the receivables from unrelated, third party sellers, and its exposure to the obligor of the receivable does not include any exposures that are directly or indirectly originated by the firm itself;(2) the purchased receivables must be generated on an arm's-length basis
BIPRU 4.8.19RRP
With respect to retail exposures, for purchased receivables, refundable purchase discounts, collateral or partial guarantees that provide first-loss protection for defaultlosses, dilution losses, or both, may be treated as first-loss positions under the provisions in BIPRU 9 (Securitisation) about the IRB approach.[Note: BCD Annex VII Part 1 point 15]
BIPRU 4.8.20RRP
For hybrid pools of purchased retail exposure receivables where the purchasing firm cannot separate exposures secured by real estate collateral and qualifying revolving retail exposures from other retail exposures, the retail risk weight2 function producing the highest capital requirements for those exposures must apply.[Note: BCD Annex VII Part 1 point 16]
BIPRU 4.8.21RRP
The risk weights for dilution risk for purchased receivables (both corporate exposures and retail exposures) must be calculated according to this rule. The risk weights must be calculated according to the formula in BIPRU 4.4.58 R. However, for the purposes of that formula, the total annual sales referred to in BIPRU 4.4.59 R are the weighted average by individual exposures of the pool. The input parameters PD and LGD and the exposure value must be determined under the applicable
BIPRU 4.8.22RRP
For purchased corporate exposure receivables in respect of which a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the PDs for these exposures must be determined according to the following methods:(1) for senior claims on purchased corporate exposure receivables PD must be the firm's estimate of EL divided by LGD for these receivables;(2) for subordinated claims on purchased corporate exposure receivables PD must be the firm's estimate of EL; and1(3)
BIPRU 4.8.23RRP
In the case of corporate exposures, for dilution risk of purchased receivables PD must be set equal to EL estimate for dilution risk. If a firm is under its IRB permission using the advanced IRB approach for LGD estimates for corporate exposures and it can decompose its EL estimates for dilution risk of purchased corporate exposure receivables into PDs and LGDs in a reliable manner, the PD estimate may be used. A firm may recognise unfunded credit protection in the PD in accordance
BIPRU 4.8.24RRP
In the case of retail exposures, for dilution risk of purchased receivables PD must be set equal to EL estimates for dilution risk. If a firm can decompose its EL estimates for dilution risk of purchased receivables into PDs and LGDs in a reliable manner, the PD estimate may be used.[Note: BCD Annex VII Part 2 point 19]
BIPRU 4.8.25RRP
The following LGD values apply for purchased corporate exposure receivables:(1) for senior purchased corporate exposure receivables exposures where a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the value is 45%;(2) for subordinated purchased corporate exposure receivables exposures where a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the value is 100%; and(3) for dilution risk of purchased corporate exposure receivables,
BIPRU 4.8.26RRP
Notwithstanding BIPRU 4.4.34 R and BIPRU 4.8.25 R, for dilution risk and default risk if a firm is under its IRB permission using the advanced IRB approach for LGD estimates for corporate exposures and it can decompose its EL estimates for purchased corporate exposure receivables into PDs and LGDs in a reliable manner, the LGD estimate for purchased corporate exposure receivables may be used.[Note: BCD Annex VII Part 2 point 9]
BIPRU 4.8.27RRP
For dilution risk of purchased retail exposure receivables an LGD value of 75% must be used. If a firm can decompose its EL estimates for dilution risk of purchased receivables into PDs and LGDs in a reliable manner, the LGD estimate may be used.[Note: BCD Annex VII Part 2 point 21]
BIPRU 4.8.28RRP
The exposure value for the calculation of risk weighted exposure amounts of purchased receivables must be the outstanding amount minus the capital requirements for dilution risk prior to credit risk mitigation.[Note: BCD Annex VII Part 3 point 6]
BIPRU 4.8.29RRP
(1) The exposure value for the items in (2) must be calculated as the committed but undrawn amount multiplied by a conversion factor.(2) For undrawn purchase commitments for revolving purchased receivables that are unconditionally cancellable or that effectively provide for automatic cancellation at any time by the firm without prior notice, a conversion factor of 0% applies. To apply a conversion factor of 0%, a firm must actively monitor the financial condition of the obligor,
BIPRU 4.8.30RRP
The expected loss amounts for dilution risk of purchased receivables must be calculated according to the following formula: expected loss (EL) = PD × LGD; andexpected loss amount = EL × exposure value.[Note: BCD Article 88(5) and Annex VII Part 1 point 35]
BIPRU 5.7.1RRP
The following parties may be recognised as eligible providers of unfunded credit protection:(1) central governments and central banks;(2) regional governments or local authorities;(3) multilateral development banks;(4) international organisationsexposures which are assigned a 0% risk weight under the standardised approach;(5) public sector entities, claims on which are treated as claims on institutions or central governments under the standardised approach;(6) institutions;(7)
BIPRU 5.7.2RRP
The following types of credit derivatives, and instruments that may be composed of such credit derivatives or that are economically effectively similar, may be recognised as eligible;(1) credit default swaps;(2) total return swaps; and(3) credit linked notes to the extent of their cash funding.[Note: BCD Annex VIII Part 1 point 30]
BIPRU 5.7.3RRP
Where a firm buys credit protection through a total return swap and records the net payments received on the swap as net income, but does not record offsetting deterioration in the value of the asset that is protected (either through reductions in fair value or by an addition to reserves), the credit protection must not be recognised as eligible.[Note: BCD Annex VIII Part 1 point 31]
BIPRU 5.7.4RRP
When a firm conducts an internal hedge using a credit derivative - i.e. hedges the credit risk of an exposure in the non-trading book with a credit derivative booked in the trading book - in order for the protection to be recognised as eligible for the purposes of BIPRU 4.10 or BIPRU 5 the credit risk transferred to the trading book must be transferred out to a third party or parties. In such circumstances, subject to the compliance of such transfer with the requirements for the
BIPRU 5.7.6RRP
Subject to BIPRU 5.7.9 R, for the credit protection deriving from a guarantee or credit derivative to be recognised the following conditions must be met:(1) the credit protection must be direct;(2) the extent of the credit protection must be clearly defined and incontrovertible;(3) the credit protection contract must not contain any clause, the fulfilment of which is outside the direct control of the lender, that:(a) would allow the protection provider unilaterally to cancel the
BIPRU 5.7.8RRP
A firm must be able to satisfy the appropriate regulator that it has systems in place to manage potential concentration of risk arising from the firm's use of guarantees and credit derivatives. The firm must be able to demonstrate how its strategy in respect of its use of credit derivatives and guarantees interacts with its management of its overall risk profile.[Note: BCD Annex VIII Part 2 point 15]
BIPRU 5.7.9RRP
Where an exposure is protected by a guarantee which is counter-guaranteed by a central government or central bank, a regional government or local authority or a public sector entity claims on which are treated as claims on the central government in whose jurisdiction they are established under the standardised approach, a multilateral development bank or an international organisation,1to which a 0% risk weight is assigned under or by virtue of the standardised approach, or a public
BIPRU 5.7.10RRP
The treatment of BIPRU 5.7.9 R applies, also, to an exposure which is not counter-guaranteed by an entity listed in that rule if the exposure's counter-guarantee is in its turn directly guaranteed by one of the listed entities and the conditions listed in BIPRU 5.7.9 R are satisfied.[Note: BCD Annex VIII Part 2 point 17]
BIPRU 5.7.11RRP
For a guarantee to be recognised the following conditions must also be met:(1) on the qualifying default of and/or non-payment by the counterparty, the lending firm must have the right to pursue, in a timely manner, the guarantor for any monies due under the claim in respect of which the protection is provided;(2) payment by the guarantor must not be subject to the lending firm first having to pursue the obligor;(3) in the case of unfunded credit protection covering residential
BIPRU 5.7.12RRP
In the case of guarantees provided in the context of mutual guarantee schemes recognised for these purposes by another EEA competent authority under a CRD implementation measure with respect to point 19 of Part 2 of Annex VIII of the Banking Consolidation Directive or provided by or counter-guaranteed by entities referred to in BIPRU 5.7.9 R, the requirements in BIPRU 5.7.11 R (1) - (3) will be satisfied where either of the following conditions are met:(1) the lending firm has
BIPRU 5.7.13RRP
For a credit derivative to be met the following conditions must also be met.(1) Subject to (2), the credit events specified under the credit derivative must at a minimum include:(a) the failure to pay the amounts due under the terms of the underlying obligation that are in effect at the time of such failure (with a grace period that is closely in line with or shorter than the grace period in the underlying obligation);(b) the bankruptcy, insolvency or inability of the obligor
BIPRU 5.7.14RRP
A mismatch between the underlying obligation and the reference obligation under the credit derivative (i.e. the obligation used for the purposes of determining cash settlement value or the deliverable obligation) or between the underlying obligation and the obligation used for purposes of determining whether a credit event has occurred is permissible only if the following conditions are met:(1) the reference obligation or the obligation used for purposes of determining whether
BIPRU 5.7.16RRP
(1) The value of unfunded credit protection (G) is the amount that the protection provider has undertaken to pay in the event of the default or non-payment of the borrower or on the occurrence of other specified credit events.(2) In the case of credit derivatives which do not include as a credit event restructuring of the underlying obligation involving forgiveness or postponement of principal, interest or fees that result in a credit loss event (e.g. value adjustment, the making
BIPRU 5.7.17RRP
Where unfunded credit protection is denominated in a currency different from that in which the exposure is denominated (a currency mismatch) the value of the credit protection must be reduced by the application of a volatility adjustment HFX as follows:G* = G x (1-HFX)where:(1) G is the nominal amount of the credit protection;(2) G* is G adjusted for any foreign currency risk; and(3) Hfx is the volatility adjustment for any currency mismatch between the credit protection and the
BIPRU 5.7.18RRP
Where there is no currency mismatch:G* = G[Note: BCD Annex VIII Part 3 point 84 (part)]
BIPRU 5.7.19RRP
The volatility adjustments to be applied for any currency mismatch may be calculated based on the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach as set out in BIPRU 5.4.30 R to BIPRU 5.4.65 R.[Note: BCD Annex VIII Part 3 point 85]
BIPRU 5.7.21RRP
Where a firm transfers a part of the risk of a loan in one or more tranches, BIPRU 9 applies. Materiality thresholds on payments below which no payment shall be made in the event of loss are considered to be equivalent to retained first loss positions and to give rise to a tranched transfer of risk.[Note: BCD Annex VIII Part 3 point 86]
BIPRU 5.7.23RRP
For the purposes of BIPRU 3.2.20 R to BIPRU 3.2.26 R, g shall be the risk weight to be assigned to an exposure, the exposure value (E) of1 which is fully protected by unfunded credit protection (GA), where:(1) g is the risk weight of exposures to the protection provider as specified under the standardised approach; 1(2) GA is the value of G* as calculated under BIPRU 5.7.17 R further adjusted for any maturity mismatch as laid down in BIPRU 5.8; and1(3) 1E is the exposure value
BIPRU 5.7.24RRP
Where the protected amount is less than the exposure value and the protected and unprotected portions are of equal seniority - i.e.1 the firm and the protection provider share losses on a pro-rata basis, proportional regulatory capital relief is afforded. For the purposes of BIPRU 3.2.20 R to BIPRU 3.2.26 Rrisk weighted exposure amounts must be calculated in accordance with the following formula:(E-GA) x r + GA x gwhere:1(1) E is the exposure value; according to BIPRU 3.2.1 R
BIPRU 5.7.25RRP
A firm may apply the treatment provided for in BIPRU 3.4.5 R to BIPRU 3.4.7 R to exposures or parts of exposures guaranteed by the central government or central bank, where the guarantee is denominated in the domestic currency of the borrower and the exposure is funded in that currency.[Note: BCD Annex VIII Part 3 point 89]
BIPRU 5.7.26RRP
BIPRU 5.7.27 R to BIPRU 5.7.28 R set out the provisions applying to the calculation of risk weighted exposure amount and expected loss amounts where basket credit risk mitigation techniques are used.
BIPRU 5.7.27RRP
Where a firm obtains credit protection for a number of exposures under terms that the first default among the exposures will trigger payment and that this credit event will terminate the contract, the firm may modify the calculation of the risk weighted exposure amount and, as relevant, the expected loss amount of the exposure which would in the absence of the credit protection produce the lowest risk weighted exposure amount under the standardised approach or the IRB approach
BIPRU 5.7.28RRP
Where the nth default among the exposures triggers payment under the credit protection provided by a credit derivative, a firm purchasing the protection may only recognise the protection for the calculation of risk weighted exposure amounts and, as relevant, expected loss amounts if protection has also been obtained for defaults 1 to n-1 or when n-1 defaults have already occurred. In such cases the methodology must follow that set out in BIPRU 5.7.27 R for first-to-default derivatives
BIPRU 9.12.1RRP
BIPRU 9.12 applies to the calculation of risk weighted exposure amounts of securitisation positions under the IRB approach.[Note:BCD Annex IX Part 4 point 37 (part)]
BIPRU 9.12.2RRP
For a rated position or a position in respect of which an inferred rating may be used, the ratings based method must be used to calculate the risk weighted exposure amount.[Note:BCD Annex IX Part 4 point 38]
BIPRU 9.12.3RRP
For an unrated position the supervisory formula method must be used except where a firm uses the ABCP internal assessment approach.[Note:BCD Annex IX Part 4 point 39]
BIPRU 9.12.5RRP
A firm other than an originator or a sponsor may not use the supervisory formula method unless its IRB permission expressly permits it to do so.[Note:BCD Annex IX Part 4 point 40]
BIPRU 9.12.6RRP
Subject to any IRB permission of the type described in BIPRU 9.12.28 G, in the case of an originator or sponsor unable to calculate KIRB and which has not obtained approval to use the ABCP internal assessment approach, and in the case of other firms where they have not obtained approval to use the supervisory formula method or, for positions in ABCP programmes, the ABCP internal assessment approach, a risk weight of 1250% must be assigned to securitisation positions which are
BIPRU 9.12.7RRP
When the following minimum operational requirements are satisfied a firm must attribute to an unrated position an inferred credit assessment equivalent to the credit assessment of those rated positions (the reference positions) which are the most senior positions which are in all respects subordinate to the unratedsecuritisation position in question:(1) the reference positions must be subordinate in all respects to the unratedsecuritisation position;(2) the maturity of the reference
BIPRU 9.12.8RRP
For an originator, a sponsor, or for other firms which can calculate KIRB, the risk weighted exposure amounts calculated in respect of its positions in a securitisation may be limited to that which would produce an amount in respect of its credit risk capital requirement equal to the sum of 8% of the risk weighted exposure amount which would be produced if the securitised assets had not been securitised and were on the balance sheet of the firm plus the expected loss amounts of
BIPRU 9.12.10RRP
Under the ratings based method, the risk weighted exposure amount of a rated securitisation position4 or resecuritisation position4 must be calculated by applying to the exposure value the risk weight associated with the credit quality step with which the credit assessment is associated as prescribed in BIPRU 9.12.11 R multiplied by 1.06.[Note:BCD Annex IX Part 4 point 46]44
BIPRU 9.12.11RRP
Table: This table belongs to BIPRU 9.12.10 R44Credit Quality StepSecuritisation positionsResecuritisation positionsCredit assessments other than short termShort-term credit assessmentsABCDE117%12%20%20%30%28%15%25%25%40%310%18%35%35%50%4212%20%40%65%520%35%60%100%635%50%100%150%7360%75%150%225%8100%200%350%9250%300%500%10425%500%650%11650%750%850%all other, unrated1250%[Note: For mapping of the credit quality step to the credit assessments of eligible ECAIs, refer to: http://www.fca.org.uk/your-fca/documents/fsa-ecais-securitisation
BIPRU 9.12.13RRP
4For the purposes of BIPRU 9.12.10 R:34(1) the weightings in column C of BIPRU 9.12.11 R must be applied where the securitisation position is not a resecuritisation position and where the effective number of exposures securitised is less than six;4(2) for the remainder of the securitisation positions that are not resecuritisation positions, the weightings in column B must be applied unless the position is in the most senior tranche of a securitisation, in which case the weightings
BIPRU 9.12.14RRP
When determining under BIPRU 9.12.13 R whether a tranche is the most senior for these purposes, a firm need not take into consideration amounts due under interest rate or currency derivative contracts, fees due, or other similar payments.[Note:BCD Annex IX Part 4 point 47 (part)]
BIPRU 9.12.17RRP
In calculating the effective number of exposuressecuritised,4 multiple exposures to one obligor must be treated as one exposure. The effective number of exposures is calculated as:N = (((i)(EADi))2)/((i)(EADi2))where EADi represents the sum of the exposure values of all exposures to the ith obligor. If the portfolio share associated with the largest exposure, C1, is available, the firm may compute N as 1/C1.4[Note:BCD Annex IX Part 4 point 49]44
BIPRU 9.12.20RRP
(1) If:(a) a firm'sIRB permission allows it to use this treatment; and(b) the conditions in (2)(16) are satisfied,a firm may attribute to an unrated position in an asset backed commercial paper programme a derived rating as laid down in (3).(2) Positions in the commercial paper issued from the programme must be rated positions.(3) Under the ABCP internal assessment approach, the unrated position must be assigned by the firm to one of the rating grades described in (5). The position
BIPRU 9.12.21RRP
Subject to any permission of the type described in BIPRU 9.12.28 G, under the supervisory formula method, the risk weight for a securitisation position must be the risk weight to be applied in accordance with BIPRU 9.12.22 R. However, the risk weight must be no less than 20% for resecuritisation positions and no less than 7% for all other securitisation positions.4[Note:BCD Annex IX Part 4 point 52]4
BIPRU 9.12.22RRP
(1) Subject to any permission of the type described in BIPRU 9.12.28 G, the risk weight to be applied to the exposure amount must be:12.5 (S[L+T] - S[L]) / T(2) The remaining provisions of this paragraph define the terms used in the formulae in (1) and (3).(3) 2(4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) In these expressions, Beta [x; a, b]refers to the cumulative beta distribution with parameters a and b evaluated at x.(16) T (the thickness of the tranche in which the
BIPRU 9.12.23RRP
(1) Under the supervisory formula method, if the exposure value of the largest securitisedexposure, C1, is no more than 3% of the sum of the exposure values of the securitisedexposures, then for the purposes of the supervisory formula method the firm may set LGD equal 50% and N equal to either:(a) ;or(b) N=1/ C1.(2) Cm is the ratio of the sum of the exposure values of the largest 'm' exposures to the sum of the exposure values of the exposuressecuritised. The level of m may be
BIPRU 9.12.25RRP
The provisions in BIPRU 9.12.26 R to BIPRU 9.12.28 G apply for the purposes of determining the exposure value of an unratedsecuritisation position in the form of certain types of liquidity facility.[Note:BCD Annex IX Part 4 point 55]
BIPRU 9.12.27RRP
A conversion figure of 0% may be applied to the nominal amount of a liquidity facility that meets the conditions set out in BIPRU 9.11.12 R.[Note:BCD Annex IX Part 4 point 57]
BIPRU 9.12.28GRP
(1) When it is not practical for the firm to calculate the risk weighted exposure amounts for the securitised exposures as if they had not been securitised and the position does not qualify for the ABCP internal assessment approach, a firm may apply to the appropriate regulator for a variation of its IRB permission under which, on an exceptional basis, it may temporarily apply the method in (2) for the calculation of risk weighted exposure amounts for an unratedsecuritisation
BIPRU 13.4.2RRP
A firm must obtain the current replacement cost of all contracts with positive values by attaching current market values1 to contracts (marking to market).[Note: BCD Annex III Part 3, Step (a)]
BIPRU 13.4.3RRP
A firm must obtain a figure for potential future credit exposure by multiplying the notional principal amounts or underlying values by the percentages in the table in BIPRU 13.4.5 R.[Note: BCD Annex III Part 3, Step (b) (part)]
BIPRU 13.4.4RRP
BIPRU 13.4.3 R does not apply in the case of single-currency "floating/floating" interest rate swaps.[Note: BCD Annex III Part 3, Step (b) (part)]
BIPRU 13.4.5RRP
This table belongs to BIPRU 13.4.5 RResidual maturityInterest-rate contractsContracts concerning foreign currency rates and goldContracts concerning equitiesContracts concerning precious metals except goldContracts concerning commodities other than precious metalsOne year or less0%1%6%7%10%Over one year, not exceeding five years0,5%5%8%7%12%Over five years1.5%7.5%10%8%15%[Note: BCD Annex III Part 3, Table 1]
BIPRU 13.4.6RRP
A firm must treat a contract which does not fall within one of the five categories indicated in the table in BIPRU 13.4.5 R as a contract concerning commodities other than precious metals.[Note: BCD Annex III Part 3, Table 1 footnote 25]
BIPRU 13.4.7RRP
For contracts with multiple exchanges of principal, a firm must multiply the percentages in the table in BIPRU 13.4.5 R by the number of remaining payments still to be made according to the contract.[Note: BCD Annex III Part 3, Table 1 footnote 26]
BIPRU 13.4.8RRP
For contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates, a firm must treat the residual maturity as equal to the time until the next reset date.[Note: BCD Annex III Part 3, Table 1 footnote 27 (part)]
BIPRU 13.4.9RRP
In the case of interest-rate contracts that meet the criteria in BIPRU 13.4.8 R and have a remaining maturity of over one year, a firm must apply a percentage no lower than 0.5%.[Note: BCD Annex III Part 3, Table 1 footnote 27 (part)]
BIPRU 13.4.11RRP
This table belongs to BIPRU 13.4.10 RResidual maturityPrecious metals (except gold)Base metalsAgricultural products (softs)Other, including energy productsOne year or less2%2,5%3%4%Over one year, not exceeding five years5%4%5%6%Over five years7.5%8%9%10%[Note: BCD Annex III Part 3, Table 2]
BIPRU 13.4.12RRP
A firm must calculate the exposure value as the sum of:(1) the current replacement cost calculated under BIPRU 13.4.2 R; and(2) the potential future credit exposure calculated under BIPRU 13.4.3 R.[Note: BCD Annex III Part 3, Step (c)]
BIPRU 13.4.15RRP
A firm must ensure that the notional amount to be taken into account is an appropriate yardstick for the risk inherent in the contract. Where, for instance, the contract provides for a multiplication of cash flows, a firm must adjust the notional amount in order to take into account the effects of the multiplication on the risk structure of that contract.[Note: BCD Annex III Part 2 point 8]
BIPRU 13.4.16RRP
The single net amounts fixed by contracts for novation, rather than the gross amounts involved, may be weighted. For the purposes of the CCR mark to market method, a firm may obtain:(1) in BIPRU 13.4.2 R, the current replacement cost; and(2) in BIPRU 13.4.3 R, the notional principal amounts or underlying values;by taking account of the contract for novation.[Note: BCD Annex III Part 7 point c(i)]
BIPRU 13.4.17RRP
In application of the CCR mark to market method:(1) in BIPRU 13.4.2 R a firm may obtain the current replacement cost for the contracts included in a netting agreement by taking account of the actual hypothetical net replacement cost which results from the agreement; in the case where netting leads to a net obligation for the firm calculating the net replacement cost, the current replacement cost is calculated as "0"; and(2) in BIPRU 13.4.3 R a firm may reduce the figure for potential
BIPRU 13.4.18RRP
For the calculation of the potential future credit exposure according to the formula in BIPRU 13.4.17 R perfectly matching contracts included in the netting agreement may be taken into account as a single contract with a notional principal equivalent to the net receipts.[Note: BCD Annex III Part 7 point c(ii) (part)]
BIPRU 13.4.19RRP
For the purposes of BIPRU 13.4.18 R a perfectly matching contract is a forward foreign currency contract or similar contract in which a notional principal is equivalent to cash flows if the cash flows fall due on the same value date and fully or partly in the same currency.[Note: BCD Annex III Part 7 point c(ii) (part)]
BIPRU 3.6.1RRP
The use of ECAI credit assessments for the calculation of a firm'srisk weighted exposure amounts must be consistent and in accordance with BIPRU 3.61. Credit assessments must not be used selectively.[Note: BCD Article 83(1)]
BIPRU 3.6.2RRP
Where the appropriate regulator's recognition of an ECAI is not limited to its solicited credit assessments, a firm may use an unsolicited credit assessment of an eligible ECAI for the calculation of a firm'srisk weighted exposure amounts.[Note: BCD Article 83(2)]
BIPRU 3.6.4RRP
A firm may nominate one or more eligible ECAIs to be used for the determination of risk weights to be assigned to asset and off-balance sheet items.[Note: BCD Annex VI Part 3 point 1]
BIPRU 3.6.5RRP
A firm which decides to use the credit assessments produced by an eligible ECAI for a certain class of items must use those credit assessments consistently for all exposures belonging to that class.[Note: BCD Annex VI Part 3 point 2]
BIPRU 3.6.6RRP
A firm which decides to use the credit assessments produced by an eligible ECAI must use them in a continuous and consistent way over time.[Note: BCD Annex VI Part 3 point 3]
BIPRU 3.6.7RRP
A firm can only use ECAIs' credit assessments that take into account all amounts both in principal and in interest owed to it.[Note: BCD Annex VI Part 3 point 4]
BIPRU 3.6.8RRP
If only one credit assessment is available from a nominated ECAI for a rated item, that credit assessment must be used to determine the risk weight for that item.[Note: BCD Annex VI Part 3 point 5]
BIPRU 3.6.9RRP
If two credit assessments are available from nominated ECAIs and the two correspond to different risk weights for a rated item, the higher risk weight must be applied.[Note: BCD Annex VI Part 3 point 6]
BIPRU 3.6.10RRP
If more than two credit assessments are available from nominated ECAIs for a rated item, the two assessments generating the two lowest risk weights must be referred to. If the two lowest risk weights are different, the higher risk weight must be assigned. If the two lowest risk weights are the same, that risk weight must be assigned.[Note: BCD Annex VI Part 3 point 7]
BIPRU 3.6.12RRP
Where a credit assessment exists for a specific issuing program or facility to which the item constituting the exposure belongs, this credit assessment must be used to determine the risk weight to be assigned to that item.[Note: BCD Annex VI Part 3 point 8]
BIPRU 3.6.13RRP
Where no directly applicable credit assessment exists for a certain item, but a credit assessment exists for a specific issuing program or facility to which the item constituting the exposure does not belong or a general credit assessment exists for the issuer, then that credit assessment must be used if it produces a higher risk weight than would otherwise be the case or if it produces a lower risk weight and the exposure in question ranks pari passu or senior in all respects
BIPRU 3.6.15RRP
Credit assessments for issuers within a corporate group cannot be used as credit assessment of another issuer within the same corporate group.[Note: BCD Annex VI Part 3 point 11]
BIPRU 3.6.16RRP
Short-term credit assessments may only be used for short-term asset and off-balance sheet items constituting exposures to institutions and corporates.[Note: BCD Annex VI Part 3 point 12]
BIPRU 3.6.17RRP
Any short-term credit assessment may only apply to the item the short-term credit assessment refers to, and it must not be used to derive risk weights for any other item.[Note: BCD Annex VI Part 3 point 13]
BIPRU 3.6.18RRP
Notwithstanding BIPRU 3.6.17 R, if a short-term rated facility is assigned a 150% risk weight, then all unrated unsecured exposures on that obligor whether short-term or long-term must also be assigned a 150% risk weight.[Note: BCD Annex VI Part 3 point 14]
BIPRU 3.6.19RRP
Notwithstanding BIPRU 3.6.17 R, if a short-term rated facility is assigned a 50% risk weight, no unrated short-term exposure may be assigned a risk weight lower than 100%.[Note: BCD Annex VI Part 3 point 15]
BIPRU 3.6.20RRP
A credit assessment that refers to an item denominated in the obligor's domestic currency cannot be used to derive a risk weight for another exposure on that same obligor that is denominated in a foreign currency.[Note: BCD Annex VI Part 3 point 16]
BIPRU 3.6.21RRP
Notwithstanding BIPRU 3.6.20 R, when an exposure arises through a firm's participation in a loan that has been extended by a multilateral development bank whose preferred creditor status is recognised in the market, the credit assessment on the obligors' domestic currency item may be used for risk weighting purposes.[Note: BCD Annex VI Part 3 point 17]
BIPRU 11.5.1RRP
A firm must disclose its risk management objectives and policies for each separate category of risk, including the risks referred to under BIPRU 11.5.1 R to BIPRU 11.5.17 R. These disclosures must include:(1) the strategies and processes to manage those risks;(2) the structure and organisation of the relevant risk management function or other appropriate arrangements;(3) the scope and nature of risk reporting and measurement systems; and(4) the policies for hedging and mitigating
BIPRU 11.5.2RRP
A firm must disclose the following information regarding the scope of application of the requirements of the Banking Consolidation Directive:(1) the name of the firm which is the subject of the disclosures;(2) an outline of the differences in the basis of consolidation for accounting and prudential purposes, with a brief description of the entities that are:(a) fully consolidated;(b) proportionally consolidated;(c) deducted from capital resources;(d) neither consolidated nor deducted;(3)
BIPRU 11.5.3RRP
A firm must disclose the following information regarding its capital resources:(1) summary information on the terms and conditions of the main features of all capital resources items and components thereof, including:2(a) 2hybrid capital;(b) 2capital instruments which provide an incentive for the firm to redeem them; and(c) 2capital instruments which the firm treats as tier one capital under GENPRU TP8A;(2) tier one capital resources, with separate disclosure of:22(a) 2all positive
BIPRU 11.5.4RRP
A firm must disclose the following information regarding compliance with BIPRU 3, BIPRU 4, 5, BIPRU 7, 5 and the overall Pillar 2 rule:(1) a summary of the firm's approach to assessing the adequacy of its internal capital to support current and future activities;(2) for a firm calculating risk weighted exposure amounts in accordance with the standardised approach to credit risk, 8% of the risk weighted exposure amounts for each of the standardised credit risk exposure classes;(3)
BIPRU 11.5.5RRP
For retail exposures, the requirement under BIPRU 11.5.4 R (3) applies to each of the following categories:(1) exposures to retail SMEs;(2) retail exposures secured by real estate collateral;(3) qualifying revolving retail exposures; and(4) other retail exposures.[Note: BCD Annex XII Part 2 point 4(part)]
BIPRU 11.5.6RRP
For equity exposures, the requirement under BIPRU 11.5.4 R (3) applies to:(1) each of the approaches ( the simple risk weight approach, the PD/LGD approach and the internal models approach) provided for in BIPRU 4.7.5 R to BIPRU 4.7.6 R, BIPRU 4.7.9 R to BIPRU 4.7.11 R, BIPRU 4.7.14 R to BIPRU 4.7.16 R, BIPRU 4.7.24 R to BIPRU 4.7.25 R;(2) exchange traded exposures, private equity exposures in sufficiently diversified portfolios, and other exposures;(3) exposures subject to supervisory
BIPRU 11.5.7RRP
A firm must disclose the following information regarding its exposure to counterparty credit risk:(1) a discussion of the methodology used to assign internal capital and credit limits for counterparty credit exposures;(2) a discussion of policies for securing collateral and establishing credit reserves;(3) a discussion of policies with respect to wrong-way riskexposures;(4) a discussion of the impact of the amount of collateral the firm would have to provide given a downgrade
BIPRU 11.5.8RRP
A firm must disclose the following information regarding its exposure to credit risk and dilution risk:(1) the definitions for accounting purposes of past due and impaired;(2) a description of the approaches and methods adopted for determining value adjustments and provisions;(3) the total amount of exposures after accounting offsets and without taking into account the effects of credit risk mitigation, and the average amount of the exposures over the period broken down by different
BIPRU 11.5.9RRP
The information to be disclosed under BIPRU 11.5.8 R (9) must comprise:(1) a description of the type of value adjustments and provisions;(2) the opening balances;(3) the amounts taken against the provisions during the period;(4) the amounts set aside or reversed for estimated probable losses on exposures during the period, any other adjustments including those determined by exchange rate differences, business combinations, acquisitions and disposals of subsidiary undertakings,
BIPRU 11.5.10RRP
For a firm calculating risk weighted exposure amounts in accordance with the standardised approach to credit risk, the following information must be disclosed for each of the standardised credit risk exposure classes;(1) the names of the nominated ECAIs and export credit agencies and the reasons for any changes;(2) the standardised credit risk exposure classes for which each ECAI or export credit agency is used;(3) a description of the process used to transfer the issuer and issue
BIPRU 11.5.11RRP
A firm calculating risk weighted exposure amounts for specialised lending exposures in accordance with BIPRU 4.5.8 R to BIPRU 4.5.10 R or equity exposures in accordance with BIPRU 4.7.9 R to BIPRU 4.7.10 R (the simple risk weight approach) must disclose the exposures assigned:(1) to each category of the table in BIPRU 4.5.9 R; or(2) to each risk weight mentioned in BIPRU 4.7.9 R to BIPRU 4.7.10 R.[Note: BCD Annex XII Part 2 point 8]
BIPRU 11.5.12RRP
A firm must disclose its capital resources requirements separately for each risk referred to in (1), (2) and (3):44(1) in respect of its trading-book business, its:(a) interest rate PRR;(b) equity PRR;1(c) option PRR;(d) collective investment schemesPRR;(e) counterparty risk capital component; and(f) [deleted]6(2) in respect of all of its business activities, its:(a) commodity PRR; and(b) foreign currency PRR; and41(3) its specific interest-rate risk of securitisation positions.4[Note:
BIPRU 11.5.13RRP
The following information must be disclosed by a firm which calculates its market risk capital requirement using a VaR model:(1) for each sub-portfolio covered:(a) the characteristics of the models used;(b) a description of stress testing applied to the sub-portfolio;(c) a description of the approaches used for back-testing 2and validating the accuracy and consistency of the internal models and modelling processes;(d) 2for the capital charges calculated according to the incremental
BIPRU 11.5.15RRP
A firm must disclose the following information regarding the exposures in equities not included in the trading book:(1) the differentiation between exposures based on their objectives, including for capital gains relationship and strategic reasons, and an overview of the accounting techniques and valuation methodologies used, including key assumptions and practices affecting valuation and any significant changes in these practices;(2) the balance sheet value, the fair value and,
BIPRU 11.5.16RRP
A firm must disclose the following information on its exposure to interest rate risk on positions not included in the trading book:(1) the nature of the interest rate risk and the key assumptions (including assumptions regarding loan prepayments and behaviour of non-maturity deposits), and frequency of measurement of the interest rate risk; and(2) the variation in earnings, economic value or other relevant measure used by the management for upward and downward rate shocks according
BIPRU 11.5.17RRP
A firm calculating risk weighted exposure amounts in accordance with BIPRU 9 or capital resource requirements according to BIPRU 7.2.48A R to BIPRU 7.2.48K R4 must disclose the following information, where relevant separately for its trading book and non-trading book:4(1) a description of the firm's objectives in relation to securitisation activity;(1A) the nature of other risks, including liquidity risk inherent in securitised assets;4(1B) the type of risks in terms of seniority
BIPRU 11.5.18RRP
3A firm must disclose the following information, including regular, at least annual, updates, regarding its remuneration policy and practices for those categories of staff whose professional activities have a material impact on its risk profile:(1) information concerning the decision-making process used for determining the remuneration policy, including if applicable, information about the composition and the mandate of a remuneration committee, the external consultant whose services
BIPRU 11.5.19GRP
3The appropriate regulator would normally consider the requirements to publish disclosures in accordance with BIPRU 11.3.8 R and 11.3.9 R in respect of BIPRU 11.5 as a whole to meet the requirement in paragraph 15 of Annex XII to the Banking Consolidation Directive to publish "regular, at least annual, updates" (as implemented in BIPRU 11.5.18 R).
BIPRU 11.5.20RRP
(1) 3A firm that is significant in terms of its size, internal organisation and the nature, scope and the complexity of its activities must also disclose the quantitative information referred to in BIPRU 11.5.18 R at the level of senior personnel.(2) Firms must comply with the requirements set out in BIPRU 11.5.18 R in a manner that is appropriate to their size, internal organisation and the nature, scope and complexity of their activities and without prejudice to the UK or other
BIPRU 3.2.1RRP
Subject to BIPRU 13:(1) the exposure value of an asset item must be its balance-sheet value, subject to any value adjustments required by GENPRU 1.3; and(2) the exposure value of an off-balance sheet item listed in the table in BIPRU 3.7.2 R must be the percentage of its value set out in that table.[Note: BCD Article 78(1) part]
BIPRU 3.2.2RRP
The off-balance sheet items listed in the table in BIPRU 3.7.2 R must be assigned to the risk categories as indicated in that table.[Note: BCD Article 78(1) part]
BIPRU 3.2.3RRP
Where an exposure is subject to funded credit protection, a firm may modify the exposure value applicable to that item in accordance with BIPRU 5.[Note: BCD Article 78(3)]
BIPRU 3.2.4GRP
BIPRU 13 sets out the method for determination of the exposure value of a financial derivative instrument, with the effects of contracts of novation and other netting agreements taken into account for the purposes of that method in accordance with BIPRU 13.7.[Note: reference to BCD Article 78(2) first sentence. Implementation in BIPRU 13]
BIPRU 3.2.7GRP
BIPRU 13.8 provides that, in the case of a firm using the financial collateral comprehensive method under BIPRU 5, where an exposure takes the form of an SFT, the exposure value should be increased by the volatility adjustment appropriate to such securities or commodities set out in BIPRU 5.4.30 R to BIPRU 5.4.65 R (Supervisory volatility adjustments approach and the own estimates of volatility adjustments approach).[Note: reference to BCD Article 78(1), part. Implementation in
BIPRU 3.2.9RRP
A firm must assign each exposure to one of the following exposure classes:(1) claims or contingent claims on central governments or central banks;(2) claims or contingent claims on regional governments or local authorities;(3) claims or contingent claims on administrative bodies and non-commercial undertakings;(4) claims or contingent claims on multilateral development banks;(5) claims or contingent claims on international organisation;(6) claims or contingent claims on institutions;(7)
BIPRU 3.2.10RRP
To be eligible for the retail exposure class, an exposure must meet the following conditions:(1) the exposure must be either to an individual person or persons, or to a small or medium sized entity;(2) the exposure must be one of a significant number of exposures with similar characteristics such that the risks associated with such lending are substantially reduced; and(3) the total amount owed to the firm, its parent undertakings and its subsidiary undertakings, including any
BIPRU 3.2.11RRP
A firm must take reasonable steps to acquire the knowledge referred to in BIPRU 3.2.10 R (3).[Note: BCD Article 79(2)(c) last sentence]
BIPRU 3.2.12RRP
Securities are not eligible for the retail exposure class.[Note: BCD Article 79(2) last sentence]
BIPRU 3.2.13RRP
The present value of retail minimum lease payments is eligible for the retail exposure class.[Note: BCD Article 79(3)]
BIPRU 3.2.20RRP
(1) To calculate risk weighted exposure amounts, risk weights must be applied to all exposures, unless deducted from capital resources, in accordance with the provisions of BIPRU 3.4.(2) The application of risk weights must be based on the standardised credit risk exposure class to which the exposure is assigned and, to the extent specified in BIPRU 3.4, its credit quality.(3) Credit quality may be determined by reference to:(a) the credit assessments of eligible ECAIs in accordance
BIPRU 3.2.21RRP
For the purposes of applying a risk weight, as referred to in BIPRU 3.2.20 R, the exposure value must be multiplied by the risk weight specified or determined in accordance with the standardised approach.[Note: BCD Article 80(2)]
BIPRU 3.2.22RRP
Notwithstanding BIPRU 3.2.20 R, where an exposure is subject to credit protection the risk weight applicable to that item may be modified in accordance with BIPRU 5.[Note: BCD Article 80(4)]
BIPRU 3.2.23RRP
Risk weighted exposure amounts for securitisedexposures must be calculated in accordance with BIPRU 9.[Note: BCD Article 80(5)]
BIPRU 3.2.24RRP
Exposures the calculation of risk weighted exposure amounts for which is not otherwise provided for under the standardised approach must be assigned a risk weight of 100%.[Note: BCD Article 80(6)]
BIPRU 3.2.25RRP
(1) Subject to BIPRU 3.2.35 R, and with the exception of exposures giving rise to liabilities in the form of the items referred to in BIPRU 3.2.26 R, a firm is not required to comply with BIPRU 3.2.20 R (Calculation of risk weighted exposures amounts under the standardised approach) in the case of the exposures of the firm to a counterparty which is its parent undertaking, its subsidiary undertaking or a subsidiary undertaking of its parent undertaking provided that the following
BIPRU 3.2.26RRP
A firm must not apply the treatment in BIPRU 3.2.25 R to exposures giving rise to liabilities in the form of any of the following items:(1) in the case of a BIPRU firm, any tier one capital or tier two capital; and(2) in the case of any other undertaking, any item that would be tier one capital or tier two capital if the undertaking were a BIPRU firm.[Note: BCD Article 80(7), part]
BIPRU 5.5.1RRP
Cash on deposit with, or cash assimilated instruments held by, a third party institution in a non-custodial arrangement and pledged to a lending firm may be recognised as eligible credit protection.[Note: BCD Annex VIII Part 1 point 23]
BIPRU 5.5.2RRP
To be eligible for the treatment set out at BIPRU 5.5.3 R, the protection referred to in BIPRU 5.5.1 R must satisfy the following conditions:(1) the borrower's claim against the third party institution is openly pledged or assigned to the lending firm and such pledge or assignment is legally effective and enforceable in all relevant jurisdictions;(2) the third party institution is notified of the pledge or assignment;(3) as a result of the notification, the third party institution
BIPRU 5.5.3RRP
Where the conditions set out in BIPRU 5.5.2 R are satisfied, credit protection falling within the terms of BIPRU 5.5.1 R may be treated as a guarantee by the third party institution.[Note: BCD Annex VIII Part 3 point 79]
BIPRU 5.5.4RRP
Life insurance policies pledged to a lending firm may be recognised as eligible credit protection.[Note: BCD Annex VIII Part 1 point 24]
BIPRU 5.5.5RRP
For life insurance policies pledged to a lending firm to be recognised the following conditions must be met:(1) the party providing the life insurance must be subject to the Solvency II Directive2, or is subject to supervision by a competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the Community;112(2) the life insurance policy is openly pledged or assigned to the lending firm;(3) the party providing
BIPRU 5.5.6RRP
Where it is not possible for a firm to meet the condition set out in BIPRU 5.5.5 R (7), because the insurance relationship ends before the loan relationship expires, the firm must ensure that the amount deriving from the insurance contract serves the firm as security until the end of the duration of the credit agreement.[Note: BCD Annex VIII Part 2 point 13 (part)]
BIPRU 5.5.7RRP
1(1) 1Where the conditions set out in BIPRU 5.5.5 R are satisfied, the portion of the exposure collateralised by the current surrender value of credit protection falling within the terms of BIPRU 5.5.4 R must be either:(a) 1subject to the risk weights specified in (3) where the exposure is subject to the standardised approach to credit risk; or(b) 1assigned an LGD of 40% where the exposure is subject to the IRB approach but not subject to the firm's own estimates of LGD.(2) 1In
BIPRU 5.5.8RRP
Instruments issued by third party institutions which will be repurchased by that institution on request may be recognised as eligible credit protection.[Note: BCD Annex VIII Part 1 point 25]
BIPRU 5.5.9RRP
Instruments eligible under BIPRU 5.5.8 R may be treated as a guarantee by the issuing institution.[Note: BCD Annex VIII Part 3 point 81]
BIPRU 5.5.10RRP
For the purposes of BIPRU 5.5.9 R, the value of the credit protection recognised is the following:(1) where the instrument will be repurchased at its face value, the value of the protection is that amount; or(2) where the instrument will be repurchased at market price, the value of the protection is the value of the instrument valued in the same way as the debt securities specified in BIPRU 5.4.5 R.[Note: BCD Annex VIII Part 3 point 82]
BIPRU 5.5.11RRP
Investments in credit linked notes issued by a lending firm may be treated as cash collateral.[Note: BCD Annex VIII Part 3 point 3]
BIPRU 5.2.1RRP
A firm using the standardised approach may recognise credit risk mitigation in accordance with BIPRU 5 in the calculation of risk weighted exposure amounts for the purposes of the calculation of the credit risk capital component.[Note: BCD Article 91]
BIPRU 5.2.2RRP
The technique used to provide the credit protection together with the actions and steps taken and procedures and policies implemented by a lending firm must be such as to result in credit protection arrangements which are legally effective and enforceable in all relevant jurisdictions.[Note: BCD Article 92(1)]
BIPRU 5.2.4RRP
A lending firm must take all appropriate steps to ensure the effectiveness of the credit protection arrangement and to address related risks.[Note: BCD Article 92(2)]
BIPRU 5.2.5RRP
In the case of funded credit protection:(1) to be eligible for recognition the assets relied upon must be sufficiently liquid and their value over time sufficiently stable to provide appropriate certainty as to the credit protection achieved having regard to the approach used to calculate risk weighted exposure amounts and to the degree of recognition allowed; eligibility is limited to the assets set out in the CRM eligibility conditions; and(2) the lending firm must have the
BIPRU 5.2.7RRP
In the case of unfunded credit protection:(1) to be eligible for recognition the party giving the undertaking must be sufficiently reliable, and the protection agreement legally effective and enforceable in the relevant jurisdictions, to provide appropriate certainty as to the credit protection achieved having regard to the approach used to calculate risk weighted exposure amounts and to the degree of recognition allowed; and(2) eligibility is limited to the protection providers
BIPRU 5.2.8RRP
The minimum requirements set out in BIPRU 5 must be complied with.[Note: BCD Article 92(6)]
BIPRU 5.2.9RRP
A firm must be able to satisfy the appropriate regulator that it has adequate risk management processes to control the 1risks to which the firm may be exposed as a result of carrying out credit risk mitigation. Those processes must include appropriate stress tests and scenario analyses relating to those risks, including residual risk and the risks relating to the intrinsic value of the credit risk mitigation1.[Note: BCD Annex VIII Part 2 point 1]1
BIPRU 5.2.10RRP
Notwithstanding the presence of credit risk mitigation taken into account for the purposes of calculating risk weighted exposure amounts and as relevant expected loss amounts, a firm must continue to undertake full credit risk assessment of the underlying exposure and must be in a position to demonstrate to the appropriate regulator the fulfilment of this requirement. In the case of repurchase transactions and/or securities or commodities lending or borrowing transactions the
BIPRU 5.2.11RRP
Where the requirements of BIPRU 5.2.2 R to BIPRU 5.2.8 R are met the calculation of risk weighted exposure amounts, may be modified in accordance with BIPRU 5.[Note: BCD Article 93(1)]
BIPRU 5.2.12RRP
No exposure in respect of which credit risk mitigation is obtained may produce a higher risk weighted exposure amount than an otherwise identical exposure in respect of which there is no credit risk mitigation.[Note: BCD Article 93(2)]
BIPRU 5.2.13RRP
Where the risk weighted exposure amount already takes account of credit protection under the standardised approach the calculation of the credit protection must not be further recognised under BIPRU 5.[Note: BCD Article 93(3)]
BIPRU 5.2.14RRP
Subject to BIPRU 5.8, BIPRU 5.9 and BIPRU 5.7.27 R to BIPRU 5.7.28 R, where the CRM eligibility conditions and the CRM minimum requirements are satisfied, the calculation of risk weighted exposure amounts under the standardised approach may be modified in accordance with the provisions of BIPRU 5.[Note: BCD Annex VIII Part 3 point 1]
BIPRU 5.2.15RRP
Cash, securities or commodities purchased, borrowed or received under a repurchase transaction or securities or commodities lending or borrowing transaction must be treated as collateral.[Note: BCD Annex VIII Part 3 point 2]