Art. 259

texts differ too much for an inline diff; shown separately

before (02013R0575-20180101)

Article 259
Hierarchy of methods
1. Institutions shall use the methods in accordance with the following hierarchy:
(a) for a rated position or a position in respect of which an inferred rating may be used, the Ratings Based Method set out in Article 261 shall be used to calculate the risk-weighted exposure amount;
(b) for an unrated position the institution may use the Supervisory Formula Method set out in Article 262 where it can produce estimates of PD, and where applicable exposure value and LGD as inputs into the Supervisory Formula Method in accordance with the requirements for the estimation of those parameters under the Internal Ratings Based approach in accordance with Section 3. An institution other than the originator institution may only use the Supervisory Formula Method subject to the prior permission of the competent authorities, which shall only be granted where the institution fulfils the condition provided in the first sentence of this point;
(c) as an alternative to point (b) and only for unrated positions in ABCP programmes, the institution may use the Internal Assessment Approach as set out in paragraph 4 if the competent authorities have permitted it to do so;
(d) in all other cases, a risk weight of 1250 % shall be assigned to securitisation positions which are unrated;
(e) notwithstanding point (d), and subject to the prior permission by the competent authorities, an institution may calculate the risk weight for an unrated position in an ABCP programme in accordance with Article 253 or 254, if the unrated position is not in commercial paper and falls within the scope of application of an Internal Assessment Approach for which permission is being sought. The aggregated exposure values treated by this exception shall not be material and in any case less than 10 % of the aggregate exposure values treated by the institution under the Internal Assessment Approach. The institution shall stop making use of this when the permission for the relevant Internal Assessment Approach has been refused.
2. For the purposes of using inferred ratings, an institution shall attribute to an unrated position an inferred credit assessment equivalent to the credit assessment of a rated reference position which is the most senior position which is in all respects subordinate to the unrated securitisation position in question and meets all of the following conditions:
(a) the reference positions shall be subordinate in all respects to the unrated securitisation position;
(b) the maturity of the reference positions shall be equal to or longer than that of the unrated position in question;
(c) on an ongoing basis, any inferred rating shall be updated to reflect any changes in the credit assessment of the reference positions.
3. The competent authorities shall grant institutions permission to use the Internal Assessment Approach as set out in paragraph 4 where all of the following conditions are met:
(a) positions in the commercial paper issued from the ABCP programme shall be rated positions;
(b) the internal assessment of the credit quality of the position shall reflect the publicly available assessment methodology of one or more ECAIs, for the rating of securities backed by the exposures of the type securitised;
(c) the ECAIs, the methodology of which shall be reflected as required by point (b), shall include those ECAIs which have provided an external rating for the commercial paper issued from the ABCP programme. Quantitative elements, such as stress factors, used in assessing the position to a particular credit quality shall be at least as conservative as those used in the relevant assessment methodology of the ECAIs in question;
(d) in developing its internal assessment methodology the institution shall take into consideration relevant published ratings methodologies of the ECAIs that rate the commercial paper of the ABCP programme. This consideration shall be documented by the institution and updated regularly, as outlined in point (g);
(e) the institution's internal assessment methodology shall include rating grades. There shall be a correspondence between such rating grades and the credit assessments of ECAIs. This correspondence shall be explicitly documented;
(f) the internal assessment methodology shall be used in the institution's internal risk management processes, including its decision making, management information and internal capital allocation processes;
(g) internal or external auditors, an ECAI, or the institution's internal credit review or risk management function shall perform regular reviews of the internal assessment process and the quality of the internal assessments of the credit quality of the institution's exposures to an ABCP programme. If the institution's internal audit, credit review, or risk management functions perform the review, then these functions shall be independent of the ABCP programme business line, as well as the customer relationship;
(h) the institution shall track the performance of its internal ratings over time to evaluate the performance of its internal assessment methodology and shall make adjustments, as necessary, to that methodology when the performance of the exposures routinely diverges from that indicated by the internal ratings;
(i) the ABCP programme shall incorporate underwriting standards in the form of credit and investment guidelines. In deciding on an asset purchase, the ABCP programme administrator shall consider the type of asset being purchased, the type and monetary value of the exposures arising from the provision of liquidity facilities and credit enhancements, the loss distribution, and the legal and economic isolation of the transferred assets from the entity selling the assets. A credit analysis of the asset seller's risk profile shall be performed and shall include analysis of past and expected future financial performance, current market position, expected future competitiveness, leverage, cash flow, interest coverage and debt rating. In addition, a review of the seller's underwriting standards, servicing capabilities, and collection processes shall be performed;
(j) the ABCP programme's underwriting standards shall establish minimum asset eligibility criteria that, in particular:
(i) exclude the purchase of assets that are significantly past due or defaulted;
(ii) limit excess concentration to individual obligor or geographic area;
(iii) limits the tenor of the assets to be purchased;
(k) the ABCP programme shall have collections policies and processes that take into account the operational capability and credit quality of the servicer. The ABCP programme shall mitigate risk relating to the performance of the seller and the servicer through various methods, such as triggers based on current credit quality that would preclude commingling of funds;
(l) the aggregated estimate of loss on an asset pool that the ABCP programme is considering purchasing shall take into account all sources of potential risk, such as credit and dilution risk. If the seller-provided credit enhancement is sized based only on credit-related losses, then a separate reserve shall be established for dilution risk, if dilution risk is material for the particular exposure pool. In addition, in sizing the required enhancement level, the program shall review several years of historical information, including losses, delinquencies, dilutions, and the turnover rate of the receivables;
(m) the ABCP programme shall incorporate structural features, such as wind-down triggers, into the purchase of exposures in order to mitigate potential credit deterioration of the underlying portfolio.
4. Under the Internal Assessment Approach, the unrated position shall be assigned by the institution to one of the rating grades laid down in point (e) of paragraph 3. The position shall be attributed a derived rating the same as the credit assessments corresponding to that rating grade as laid down in point (e) of paragraph 3. Where this derived rating is, at the inception of the securitisation, at the level of investment grade or better, it shall be considered the same as an eligible credit assessment by an ECAI for the purposes of calculating risk-weighted exposure amounts.
5. Institutions which have obtained permission to use the Internal Assessment Approach shall not revert to the use of other methods unless all of the following conditions are met:
(a) the institution has demonstrated to the satisfaction of the competent authority that the institution has good cause to do so;
(b) the institution has received the prior permission of the competent authority.

after (02013R0575-20190101)

Article 259
Calculation of risk-weighted exposure amounts under the SEC-IRBA
1. Under the SEC-IRBA, the risk-weighted exposure amount for a securitisation position shall be calculated by multiplying the exposure value of the position calculated in accordance with Article 248 by the applicable risk weight determined as follows, in all cases subject to a floor of 15 %:
RW = 1250 % when D ≤ KIRB
RW 12,5 · KSSFAKIRB when A ≥ KIRB
RWKIRB AD A · 12.5 D KIRBD A · 12.5 · KSSFAKIRB when A < KIRB < D
where:
KIRB
is the capital charge of the pool of underlying exposures as defined in Article 255
D
is the detachment point as determined in accordance with Article 256
A
is the attachment point as determined in accordance with Article 256KSSFAKIRBea · u ea · lau l
where:
a
– (1/(p * KIRB))
u
D – KIRB
l
max (A – KIRB; 0)
where:pmax 0,3; A B*1N C* KIRB D*LGD E*MT
where:
N
is the effective number of exposures in the pool of underlying exposures, calculated in accordance with paragraph 4;
LGD
is the exposure-weighted average loss-given-default of the pool of underlying exposures, calculated in accordance with paragraph 5;
MT
is the maturity of the tranche as determined in accordance with Article 257.
The parameters A, B, C, D, and E shall be determined according to the following look-up table:
A B C D E
Non-retail Senior, granular (N ≥ 25) 0 3,56 –1,85 0,55 0,07
Senior, non-granular (N < 25) 0,11 2,61 –2,91 0,68 0,07
Non-senior, granular (N ≥ 25) 0,16 2,87 –1,03 0,21 0,07
Non-senior, non-granular (N < 25) 0,22 2,35 –2,46 0,48 0,07
Retail Senior 0 0 –7,48 0,71 0,24
Non-senior 0 0 –5,78 0,55 0,27
2. If the underlying IRB pool comprises both retail and non-retail exposures, the pool shall be divided into one retail and one non-retail subpool and, for each subpool, a separate p-parameter (and the corresponding input parameters N, KIRB and LGD) shall be estimated. Subsequently, a weighted average p-parameter for the transaction shall be calculated on the basis of the p-parameters of each subpool and the nominal size of the exposures in each subpool.
3. Where an institution applies the SEC-IRBA to a mixed pool, the calculation of the p-parameter shall be based on the underlying exposures subject to the IRB Approach only. The underlying exposures subject to the Standardised Approach shall be ignored for these purposes.
4. The effective number of exposures (N) shall be calculated as follows: Ni EADi2i EAD2i
where EADi represents the exposure value associated with the ith exposure in the pool.
Multiple exposures to the same obligor shall be consolidated and treated as a single exposure.
5. The exposure-weighted average LGD shall be calculated as follows: LGDi LGDi · EADii EADi
where LGDi represents the average LGD associated with all exposures to the ith obligor.
Where credit and dilution risks for purchased receivables are managed in an aggregate manner in a securitisation, the LGD input shall be construed as a weighted average of the LGD for credit risk and 100 % LGD for dilution risk. The weights shall be the stand-alone IRB Approach capital requirements for credit risk and dilution risk, respectively. For these purposes, the presence of a single reserve fund or overcollateralisation available to cover losses from either credit or dilution risk may be regarded as an indication that these risks are managed in an aggregate manner.
6. Where the share of the largest underlying exposure in the pool (C1) is no more than 3 %, institutions may use the following simplified method to calculate N and the exposure-weighted average LGDs:NC1 · Cm Cm C1m 1 · max1 m · C1,0–1
LGD = 0,50
where
Cm
denotes the share of the pool corresponding to the sum of the largest m exposures; and
m
is set by the institution.
If only C1 is available and this amount is no more than 0,03, then the institution may set LGD as 0,50 and N as 1/C1.
7. Where the position is backed by a mixed pool and the institution is able to calculate KIRB on at least 95 % of the underlying exposure amounts in accordance with point (a) of Article 258(1), the institution shall calculate the capital charge for the pool of underlying exposures as:d · KIRB 1 d · KSA,
where
d is the share of the exposure amount of underlying exposures for which the institution can calculate KIRB over the exposure amount of all underlying exposures.
8. Where an institution has a securitisation position in the form of a derivative to hedge market risks, including interest rate or currency risks, the institution may attribute to that derivative an inferred risk weight equivalent to the risk weight of the reference position calculated in accordance with this Article.
For the purposes of the first subparagraph, the reference position shall be the position that is pari passu in all respects to the derivative or, in the absence of such pari passu position, the position that is immediately subordinate to the derivative.