| 22.14 | The input A represents the threshold at which losses within the underlying pool would first be allocated to the securitization exposure. This input, which is a decimal value between zero and one, equals the greater of
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| | (1) | zero and
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| | (2) | The ratio of
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| | | (a) | The outstanding balance of all underlying assets in the securitization minus the outstanding balance of all tranches that rank senior or pari passu to the tranche that contains the securitization exposure of the bank (including the exposure itself) to
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| | | (b) | The outstanding balance of all underlying assets in the securitization.
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| 22.15 | The input D represents the threshold at which losses within the underlying pool result in a total loss of principal for the tranche in which a securitization exposure resides. This input, which is a decimal value between zero and one, equals the greater of
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| | (1) | zero and
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| | (2) | The ratio of
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| | | (a) | The outstanding balance of all underlying assets in the securitization minus the outstanding balance of all tranches that rank senior to the tranche that contains the securitization exposure of the bank to
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| | | (b) | The outstanding balance of all underlying assets in the securitization.
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| 22.16 | For the calculation of A and D, overcollateralization and funded reserve accounts must be recognized as tranches; and the assets forming these reserve accounts must be recognized as underlying assets. Only the loss-absorbing part of the funded reserve accounts that provide credit enhancement can be recognized as tranches and underlying assets. Unfunded reserve accounts, such as those to be funded from future receipts from the underlying exposures (e.g. unrealized excess spread) and assets that do not provide credit enhancement like pure liquidity support, currency or interest-rate swaps, or cash collateral accounts related to these instruments must not be included in the above calculation of A and D. Banks should take into consideration the economic substance of the transaction and apply these definitions conservatively in the light of the structure.
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| 22.17 | The supervisory parameter p in the context of the SEC-IRBA is expressed as follows, where:
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| | (1) | 0.3 denotes the p-parameter floor;
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| | (2) | N is the effective number of loans in the underlying pool, calculated as described in 22.20;
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| | (3) | KIRB is the capital charge of the underlying pool (as defined in 22.2 to 22.5);
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| | (4) | LGD is the exposure-weighted average loss-given-default of the underlying pool, calculated as described in 22.21);
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| | (5) | MT is the maturity of the tranche calculated according to 18.22 and 18.23; and
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| | (6) | The parameters A, B, C, D, and E are determined according to Table 32:
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| Look-up table for supervisory parameters A, B, C, D and E | Table 32 | | | A | B | C | D | E | | Wholesale | 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 | | Retai | Senior | 0 | 0 | -7.48 | 0.71 | 0.24 | | Non-senior | 0 | 0 | -5.78 | 0.55 | 0.27 |
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| 22.18 | If the underlying IRB pool consists of both retail and wholesale exposures, the pool should be divided into one retail and one wholesale subpool and, for each subpool, a separate p-parameter (and the corresponding input parameters N, KIRB and LGD) should be estimated. Subsequently, a weighted average p-parameter for the transaction should be calculated on the basis of the p-parameters of each subpool and the nominal size of the exposures in each subpool.
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| 22.19 | If a bank applies the SEC-IRBA to a mixed pool as described in 18.46 and 18.47, the calculation of the p-parameter should be based on the IRB underlying assets only. The SA underlying assets should not be considered for this purpose.
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| 22.20 | The effective number of exposures, N, is calculated as follows, where EADi represents the exposure-at-default associated with the ith instrument in the pool. Multiple exposures to the same obligor must be consolidated (i.e. treated as a single instrument).
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| 22.21 | The exposure-weighted average LGD is calculated as follows, where LGDi represents the average LGD associated with all exposures to the ith obligor. When default and dilution risks for purchased receivables are treated in an aggregate manner (e.g. a single reserve or overcollateralization is available to cover losses from either source) within a securitization, the LGD input must be constructed as a weighted average of the LGD for default risk and the 100% LGD for dilution risk. The weights are the stand-alone IRB capital charges for default risk and dilution risk, respectively.
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| 22.22 | Under the conditions outlined below, banks may employ a simplified method for calculating the effective number of exposures and the exposure-weighted average LGD. Let Cm in the simplified calculation denote the share of the pool corresponding to the sum of the largest m exposures (e.g. a 15% share corresponds to a value of 0.15). The level of m is set by each bank.
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| | (1) | If the portfolio share associated with the largest exposure, C1, is no more than 0.03 (or 3% of the underlying pool), then for purposes of the SEC-IRBA the bank may set LGD as 0.50 and N equal to the following amount:
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| | |  |
| | (2) | Alternatively, if only C1 is available and this amount is no more than 0.03, then the bank may set LGD as 0.50 and N as 1/C1.
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