Single Rulebook Q&A

Question ID: 2017_3609
Legal act : Regulation (EU) No 575/2013 (CRR) as amended
Topic : Securitisation and Covered Bonds
Article: 253
Paragraph: 1
Subparagraph:
Article/Paragraph : NA
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
Type of submitter: Credit institution
Subject matter : Weighted average risk weight calculation of the securitised exposures for an unrated securitisation position in STD according to Article 253
Question:

How shall the weighted average risk weight of the securitised exposures for an unrated securitisation position in the standardised approach (STD) be calculated? Has the average to be weighted on EAD before the conversion factor (EAD_pre_ccf) or on EAD?

Background on the question:
According to Article 253(1) CRR, "for the purpose of calculating the risk-weighted exposure amount of an unrated securitisation position an institution may apply the weighted-average risk weight that would be applied to the securitised exposures under Chapter 2 by an institution holding the exposures, multiplied by the concentration ratio referred to in paragraph 2. For this purpose, the institution shall know the composition of the pool of securitised exposures securitised at all times."
Nonetheless, it is not clear whether the weighted average shall be calculated on EAD or EAD_pre_ccf.As a result, there may be different interpretations.
 
For example: Securitised Portfolio/Exposures (the RW is the one that would be applied to the securitised exposures under Chapter 2):
Asset A.
EAD_pre_ccf = 100 CCF = 0 EAD = 0 RWA = 0 RW = 100%
 
Asset B.
EAD_pre_ccf = 200 CCF = 0.5 EAD = 100 RWA = 50 RW = 50%
 
Asset C.
EAD_pre_ccf = 50 CCF = 1 EAD = 50 RWA = 10 RW = 20%
 
The tranches are on-balance sheet. To be mentioned – but not necessarily relevant for the answer - is that the securitization program is a synthetic transaction where the junior tranche is guaranteed by MDB (0% RW).
Which is the correct average RW of the 3 cases proposed below?
 
Case A) (Calculated on EAD): avg. RW = 40% [= (100 x 0% x 100% + 200 x 50% x 50% + 50 x 100% x 20%) / (0 +100 + 50)]
 
Case B) (Calculated on EAD_pre_CCF and considering the RW that would be applied under Chapter 2): avg. RW = 60% [= (100 x 100% + 200 x 50% + 50 x 20%) / (100 + 200 + 50)]
 
Case C) (Considering the effective RW = RWA/EAD_pre_ccf): avg. RW = 17.41% [= (0 + 50 + 10) / (100 + 200 + 50)]
Date of submission: 01/12/2017
Published as Final Q&A: 25/05/2018
EBA answer:
The weighted average risk weight of the securitised exposures "for the purpose of calculating the risk-weighted exposure amount of an unrated securitisation position” according to Article 253 (1) CRR shall be calculated as the ratio of
 
a) the sum of the risk-weighted exposure amounts which would currently be calculated for the securitised exposures under Chapter 2 of the CRR had they not been securitised, including the application of the CCFs, to
 
b) the sum of the exposure values which would currently be calculated for the securitised exposures under Chapter 2 of the CRR had they not been securitised, including the application of the CCFs
 
In the specific example provided in the background, this equates to Case A), resulting in an average risk weight of 40%.
Status: Final Q&A
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