Document ID: chunk:federal_register_of_legislation:F2023L00690:reg:7:p1
Version: federal_register_of_legislation:F2023L00690
Segment Type: reg
Provision Reference: reg 7 (pt 1/2)
Character Range: 21540–24606

7                   16.0         3.0       4.5                  7.5

    56.         A 'securitised/structured asset' is an asset that provides an exposure to a pool or portfolio of assets or risks. This is typically in the form of a tranched exposure and includes credit-related securitisation exposures and insurance linked securities. Examples of these include Residential Mortgage-Backed Securities, Asset-backed Securities and catastrophe bonds. A covered bond issued by an ADI must not be treated as a securitised/structured asset.
    57.         An investment that provides exposure to an untranched pool of multiple reference entities, assets or risks must be treated:
       (a)          on a 'look-through' basis;

       (b)          as an equity asset (applying the equity stress instead of the credit spreads stress); or

       (c)          as a securitised asset using the counterparty grade of the untranched pool.

    58.         Credit wrapped bonds must be treated as a securitised asset if the external rating of the bond makes some allowance for the structural protection offered by the credit wrap. Otherwise the bond must be treated as a bond with no credit wrap.
    59.         A re-securitisation exposure is a securitisation exposure in which the risk associated with an underlying pool of exposures is tranched and at least one of the underlying exposures is a securitisation exposure. In addition, an exposure to one or more re-securitisation exposures is a re-securitisation exposure.
    60.         For floating rate assets, the increase in yield must be assumed to apply for the period until a regulated institution has the contractual right to redeem the asset at face value. For at-call floating rate assets, only the default factor must be applied. For floating rate assets that are not immediately redeemable, both the credit spread and default factors must be applied.
    61.         For fixed rate assets where the regulated institution has a contractual right to early redemption of the asset, the stressed value of the asset is subject to a minimum of the guaranteed redemption value multiplied by (1 – default factor).
    62.         Unsecured loans that have a 100 per cent charge applied in the default stress in accordance with paragraph 72 must be assumed to be unaffected by the credit spreads stress.
    63.         The 'government' category applies to:
       (a)          assets guaranteed by the Commonwealth Government; and
       (b)          assets guaranteed by foreign governments that have a counterparty grade of 1 and are denominated in the official or national currency of the guarantor.
    64.         Assets guaranteed by an Australian state or territory government may be rated up one grade. For example, assets with counterparty grade 1 must be treated as grade 1 (government) and assets with counterparty grade 2 must be treated as grade 1 (other).

Default stress
    65.         This stress applies to reinsurance assets, over-the-counter derivatives, unpaid premiums and all other credit or