Prudential sourcebook for Banks, Building Societies and Investment Firms. Chapter 3. Standardised credit risk

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1 Prudential sourcebook for Banks, Building Societies and Investment Firms Chapter Standardised credit

2 BIPRU : Standardised credit Section.5 : Simplified method of calculating.5 Simplified method of calculating weights.5.1 This section ( BIPRU.5) sets out a simplified approach to calculating weights. This approach is only relevant to an exposure class for which weights are determined by the ratings of a nominated ECAI or an export credit agency. For other exposure classes a firm should use the normal approach under the standardised approach..5.2 The approach in this section is only likely to be relevant for a limited licence firm or a limited activity firm that has only incidental credit exposures and for whom it would be prohibitively costly to establish the systems needed to include the credit assessments of ECAIs and export credit agencies in its regulatory capital calculations. However the approach may be used by other firms if appropriate. A firm should notify the appropriate regulator if it adopts the approach in this section..5. Rather than weighting exposures individually, a firm eligible to apply the simplified approach should apply a single weight to all exposures in each exposure class. The simplified weight for exposures in a particular class will be the weighting for unrated entities for each exposure class in which the external credit assessments influence..5.4 The table in BIPRU.5.5 has a summary of the that a firm should use if it uses the simplified method of calculating referred to in BIPRU Table : Simplified method of calculating This table belongs to BIPRU.5.4. Central Exposures to 0% government government or Bank of England in sterling BIPRU /2 Release 22 Dec 2017

3 BIPRU : Standardised credit Section.5 : Simplified method of calculating Exposures to 0% See Note 2. government or Bank of England in the currency of State Exposures to EEA 0% State's central government or central bank in state Exposures to EEA 0% See Notes 2 and State's central. government or central bank in the currency of State Exposures to See next column The weight is central govern- whatever it is unments or central der local law. See banks of certain BIPRU.4.6 R for countries outside precise details. the EEA in currency of that country Exposures to 0% European Central Bank Other exposures 100% Regional/local Exposures to the 0% governments Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly in sterling Exposures to the 0% See Note 2. Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly in the currency of another EEA State Exposures to EEA 0% See BIPRU.4.17 R States' equivalent for details of regional/local type of local/regovernments in gional governcurrency of that ment covered. state Release 22 Dec BIPRU /

4 BIPRU : Standardised credit Section.5 : Simplified method of calculating Exposures to EEA 0% See BIPRU.4.17 R States' equivalent for details of regional/local type of local/regovernments in gional governthe currency of ment covered. State See Notes 2 and. Exposures to 0% See BIPRU.4.19 R local or regional for details of governments of type of local/recertain countries gional governoutside the EEA ment covered. in currency of that country See Note 1. Exposures to 20% or EEA States' local/regional government in state if the exposure has original maturity of Exposures to 20% See Note 2. See Note for local/ or EEA States' regional govlocal/regional ernment of an government in EEA State other the currency of than the United Kingdom State if the exposure has original maturity of Exposures to 20% See Note 1. local or regional governments of countries outside the EEA in currency of that country if the exposure has original maturity of Other exposures 100% BIPRU /4 Release 22 Dec 2017

5 BIPRU : Standardised credit Section.5 : Simplified method of calculating PSE Exposures to a 0% BIPRU.4.24 R de- PSE of the scribes the or of an EEA PSEs covered State if that PSE and BIPRU.4.25 R is guaranteed by describes the its central gov- EEA PSEs ernment and if covered. the exposure is be in currency of that PSE's state. Exposures to PSE 0% See BIPRU.4.26 R of a country out- and Note 1. side the EEA if that PSE is guaranteed by the country's central government and if the exposure is in currency of that country. Exposures to a 20% PSE of the or of an EEA State in currency of that state if the exposure has original maturity of Exposures to a 20% See Notes 2 and PSEof the United. Kingdom or of an EEA State in the currency of State if the exposure has original maturity of Exposures to PSE 20% See Note 1. of a country outside the EEA in country if the exposure has original maturity of Other exposures 100% Release 22 Dec BIPRU /5

6 BIPRU : Standardised credit Section.5 : Simplified method of calculating Multilateral de- Exposures to 0% Simplified apvelopment banks multilateral de- velopment banks listed in para- graph (1) of the lossary definition Other exposures Various Treated as an institution EU, the Interna- 0% Simplified aptional Monetary Fund and the Bank for Interna- tional Settlements Institutions Exposures to 20% institution in sterling with original maturity of three months or less Exposures to 20% See Note 2. institution in the currency of another EEA State with original maturity of three months or less Exposures to in- 20% stitution whose head office is in State in the currency of that state with original maturity of three months or less Exposures to in- 20% See Notes 2 and stitution whose. head office is in State in the currency of another EEA State with original maturity of three months or less BIPRU /6 Release 22 Dec 2017

7 BIPRU : Standardised credit Section.5 : Simplified method of calculating Exposures to in- 20% See Note 1. stitution with a head office in a country outside the EEA in the country with original maturity of three months or less Exposures to 50% institution in sterling with original maturity of over three months Exposures to 50% See Note 2. institution in the currency of another EEA State with original maturity of over three months Exposures to an 50% EEA institution with a head office in another EEA State in the state with original maturity of over three months Exposures to an 50% See Notes 2 and EEA institution. with a head office in another EEA State in the currency of another EEA State with original maturity of over three months Release 22 Dec BIPRU /7

8 BIPRU : Standardised credit Section.5 : Simplified method of calculating Exposures to in- 50% See Note 1. stitution with a head office in a country outside the EEA in the country with original maturity of over three months Other exposures 100% Corporates 100% Retail exposures 75% Simplified approach does not Mortgages on Various Simplified apresidential or commercial property Past due items Various Simplified approach does not High items 150% Simplified approach does not Covered bonds Various Risk weights are based on the weight of issuer as described in BIPRU R. The weight of the issuer for this purpose should be calculated under the simplified approach. Securitisation enerally Use the BIPRU 9 exposures 1250%. May rules for unrated look through to exposures under underlying the standardised exposures if BI- approach PRU 9 allows. Short term expo- See BIPRU sures with rating R. Not applicable as uses ECAI ratings. BIPRU /8 Release 22 Dec 2017

9 BIPRU : Standardised credit Section.5 : Simplified method of calculating CIUs May look Various Simplified apthrough to un- derlying under BIPRU.4.12 R May use simplified approach to underlying if simplified approach applies to underlying. May use average Various Simplified ap weight un- der BIPRU R May use simplified approach to underlyings if simplified approach applies to underlying. High under 150% Simplified ap- BIPRU R Others 100% Other items un- Various Simplified apder BIPRU.2.9 R (16) Note 1: The weight should not be lower than the weight that applies for national currency exposures of the central government of the third country in question under BIPRU.5. That means that this weight only applies if the third country is one of those to which BIPRU.4.6 R (Preferential weight for exposures of the central government of countries outside the EEA that apply equivalent prudential standards) applies. Note 2: This is a transitional measure. It lasts until 1 December Note : The weight should not be lower than the weight that applies for exposures of the central government of the EEA State in question in the currency of State under BIPRU If an exposure is guaranteed and if under BIPRU 5 the firm may treat the exposure as being to the guarantor, the simplified approach may be used for the guarantor. The key provisions are BIPRU R to BIPRU R..5.7 If an exposure is collateralised and if under BIPRU 5 the firm may recognise the collateral, the simplified approach may be used to determine the weight to be applied to the collateralised exposure. The key provisions are BIPRU R to BIPRU R..5.8 R If a firm does not nominate one or more eligible ECAIs as referred to in BIPRU.6.4 R the firm must not use the financial collateral comprehensive method. Release 22 Dec BIPRU /9

Allen & Overy Briefing Paper No.3 Standardised Approach to Credit Risk in the Banking Book

Allen & Overy Briefing Paper No.3 Standardised Approach to Credit Risk in the Banking Book STANDARDISED APPROACH TO CREDIT RISK IN THE BANKING BOOK This briefing paper is part of a series of briefings