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Basel ii Accord
Sections 75 to 91 |
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10. Past
due loans
75.
The unsecured portion of any loan (other than a
qualifying residential mortgage
loan)
that is past due for more than 90 days, net of
specific provisions (including partial
writeoffs), will be
risk-weighted as follows:
(30)
•
150%
risk weight when specific provisions are less
than 20% of the outstanding
amount
of the loan;
•
100%
risk weight when specific provisions are no less
than 20% of the outstanding
amount
of the loan;
•
100%
risk weight when specific provisions are no less
than 50% of the outstanding
amount
of the loan, but with supervisory discretion to
reduce the risk weight to 50%.
(30) Subject to national
discretion, supervisors may permit banks to
treat non-past due loans extended to
counterparties subject to a 150% risk weight in
the same way as past due loans described in
paragraphs 75 to
77.
76.
For the purpose of defining the secured portion
of the past due loan, eligible
collateral
and guarantees will be the same as for credit
risk mitigation purposes (see
Section
II.B).
(31) Past
due retail loans are to be excluded from the
overall regulatory retail
portfolio
when
assessing the granularity criterion specified in
paragraph 70, for
risk-weighting
purposes.
(31)
There will be a transitional period of three
years during which a wider range of collateral
may be recognised, subject to national
discretion.
77.
In addition to the circumstances described in
paragraph 75, where a past due loan
is
fully
secured by those forms of collateral that are
not recognised in paragraphs 145 and
146,
a
100% risk weight may apply when provisions reach
15% of the outstanding amount of
the
loan.
These
forms of collateral are not recognised elsewhere
in the standardised approach.
Supervisors
should set strict operational criteria to ensure
the quality of collateral.
78.
In the case of qualifying residential mortgage
loans, when such loans are past
due
for
more than 90 days they will be risk weighted at
100%, net of specific provisions.
If
such loans are past due but specific provisions
are no less than 20% of their outstanding
amount, the risk weight applicable to the
remainder of the loan can be reduced to 50% at
national discretion.
11.
Higher-risk
categories
79.
The following claims will be risk weighted at
150% or higher:
Claims on sovereigns,
PSEs, banks, and securities firms rated below
B-.
Claims
on corporates rated below BB-.
Past
due loans as set out in paragraph
75.
Securitisation
tranches that are rated between BB+ and BB- will
be risk weighted at
350%
as set out in paragraph 567.
80.
National supervisors may decide to apply a 150%
or higher risk weight reflecting
the
higher
risks associated with some other assets, such as
venture capital and private
equity
investments.
12.
Other assets
81.
The treatment of securitisation exposures is
presented separately in Section IV.
The
standard risk weight
for all other assets will be
100%.
(32)
Investments in equity
or regulatory
capital instruments issued by banks or
securities firms will be risk weighted at 100%,
unless deducted from the capital base according
to Part 1.
(32) However, at national
discretion, gold bullion held in own vaults or
on an allocated basis to the extent backed by
bullion liabilities can be treated as cash and
therefore risk-weighted at 0%. In addition, cash
items in the process of collection can be
risk-weighted at
20%.
13.
Off-balance sheet
items
82.
Off-balance-sheet items under the standardised
approach will be converted into
credit
exposure equivalents through the use of credit
conversion factors (CCF).
Counterparty
risk weightings for OTC derivative transactions
will not be subject to any specific
ceiling.
83.
Commitments with an original maturity up to one
year and commitments with an
original
maturity over one year will receive a CCF of 20%
and 50%, respectively.
However,
any commitments that are unconditionally
cancellable at any time by the bank without
prior notice, or that effectively provide for
automatic cancellation due to deterioration in
a
borrower’s creditworthiness, will receive a 0%
CCF.
(33)
(33) In certain countries, retail
commitments are considered unconditionally
cancellable if the terms permit the bank to
cancel them to the full extent allowable under
consumer protection and related
legislation.
84.
A CCF of 100% will be applied to the lending of
banks’ securities or the posting
of
securities
as collateral by banks, including instances
where these arise out of
repo-style
transactions
(i.e. repurchase/reverse repurchase and
securities lending/securities borrowing
transactions).
See
Section II.D.3 for the calculation of
risk-weighted assets where the
credit
converted
exposure is secured by eligible
collateral.
85.
For short-term self-liquidating trade letters of
credit arising from the movement
of
goods
(e.g. documentary credits collateralised by the
underlying shipment), a 20% CCF
will
be
applied to both issuing and confirming
banks.
86.
Where there is an undertaking to provide a
commitment on an off-balance
sheet
item,
banks are to apply the lower of the two
applicable CCFs.
87.
CCFs not specified in paragraphs 82 to 86 remain
as defined in the 1988 Accord.
However,
the credit equivalent amount of OTC derivatives
and SFTs that expose a bank to
counterparty
credit risk is to be calculated under the rules
set forth in Annex 4 of this
Framework.
88.
Banks must closely monitor securities,
commodities, and foreign
exchange
transactions
that have failed, starting the first day they
fail. A capital charge to
failed
transactions
must be calculated in accordance with Annex 3 of
this Framework.
89.
With regard to unsettled securities,
commodities, and foreign
exchange
transactions,
the Committee is of the opinion that banks are
exposed to counterparty credit
risk
from trade date, irrespective of the booking or
the accounting of the
transaction.
Therefore,
banks are encouraged to develop, implement and
improve systems for tracking
and
monitoring the credit risk exposure arising from
unsettled transactions as appropriate for
producing management information that
facilitates action on a timely basis.
Furthermore,
when such transactions are not processed through
a delivery-versus-payment (DvP) or
payment-versus-payment (PvP) mechanism, banks
must calculate a capital charge as set forth in
Annex 3 of this
Framework.
90. National supervisors are responsible for
determining whether an external credit
assessment institution (ECAI) meets the
criteria listed in the paragraph below. The
assessments of ECAIs may be recognised on a
limited basis, e.g. by type of claims or by
jurisdiction. The supervisory process for
recognising ECAIs should be made public to
avoid
unnecessary barriers to entry.
2.
Eligibility criteria
91. An ECAI must satisfy each of the following
six criteria.
•
Objectivity:
The methodology for assigning credit
assessments must be rigorous,
systematic, and subject to some form of
validation based on historical experience.
Moreover, assessments must be subject to
ongoing review and responsive to
changes in financial condition. Before being
recognised by supervisors, an
assessment methodology for each market
segment, including rigorous backtesting,
must have been established for at least one
year and preferably three years.
•
Independence:
An ECAI should be independent and should not
be subject to
political or economic pressures that may
influence the rating. The assessment
process should be as free as possible from any
constraints that could arise in
situations where the composition of the board
of directors or the shareholder
structure of the assessment institution may be
seen as creating a conflict of interest.
•
International
access/Transparency:
The individual assessments should be
available to both domestic and foreign
institutions with legitimate interests and at
equivalent terms. In addition, the general
methodology used by the ECAI should be
publicly available.
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