MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4611.12.31d) A bank must apply external creditassessments from eligible ECAIsconsistently across a given type ofsecuritization exposure. Furthermore, abank cannot use the credit assessmentsissued by one ECAI for one or moretranches and those of another ECAI forother positions (whether retained orpurchased) within the same securitizationstructure that may or may not be rated bythe first ECAI. Where two or more eligibleECAIs can be used and these assess thecredit risk of the same securitizationexposure differently, paragraph 59 of PartIII.C will apply.e) Where CRM is provided directlyto an SPE by an eligible guarantor definedin paragraph 47 of Part III.B and isreflected in the external credit assessmentassigned to a securitization exposure(s),the risk weight associated with thatexternal credit assessment should be used.In order to avoid any double counting, noadditional capital recognition is permitted.If the CRM provider is not an eligibleguarantor, the covered securitizationexposures should be treated as unrated.f) In the situation where a credit riskmitigant is not obtained by the SPE but ratherapplied to a specific securitization exposurewithin a given structure (e.g., ABS tranche),the bank must treat the exposure as if it isunrated and then use the CRM treatmentoutlined in Part III.B to recognize the hedge.F. Risk-weighting21. The risk-weighted asset amount ofa securitization exposure is computed bymultiplying the amount of the position bythe appropriate risk weight determined inaccordance with the following table. For offbalancesheet exposures, banks must applya credit conversion factor (CCF) and thenrisk weight the resultant credit equivalentamount.Credit AAA to A+ to A- BBB+to Below BBBassessment1 AA- BBB- and unratedRisk weight 20% 50% 100% Deductionfrom capital(50% fromTier 1 and50% fromTier 2)22. The capital treatment of implicitsupport, liquidity facilities, securitizationsof revolving exposures, and credit riskmitigants are identified separately.23. Banks must deduct from Tier 1capital any increase in equity capitalresulting from a securitization transaction,such as that associated with expected futuremargin income resulting in a gain-on-salethat is recognized in regulatory capital. Suchan increase in capital is referred to as a“gain-on-sale” for the purposes of thesecuritization framework.24. Credit enhancing interest only, netof the amount that must be deducted fromTier 1 as in paragraph 23, are to be deductedfifty percent (50%) from Tier 1 capital andfifty percent (50%) from Tier 2 capital.25. Deductions from capital may becalculated net of any specific provisionstaken against the relevant securitizationexposures.26. When a bank provides implicitsupport to a securitization, it must, at aminimum, hold capital against all of theexposures associated with the securitizationtransaction as if they had not beensecuritized. Additionally, banks would notbe permitted to recognize in regulatorycapital any gain-on-sale, as defined inparagraph 23. Furthermore, the bank isrequired to disclose publicly that (a) it hasprovided non-contractual support and (b) thecapital impact of doing so.27. As a general rule, off-balance sheetsecuritization exposures will receive a CCFof 100%, except in the cases below.1The notations follow the rating symbols used by Standard & Poor's. The mapping of ratings of all recognized external ratingagencies is in Part III.CManual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-46 - Page 31