Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p49
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 133549–136562

and timing of recoveries.
    Where a credit derivative does not cover the restructuring of the underlying asset, partial recognition is allowed as detailed in paragraph 9 of Attachment J to APS 112.
 1.          In adjusting PD or LGD estimates to reflect the impact of guarantees and credit derivatives, an ADI must take all relevant, material information into account.
 2.          An ADI must retain all relevant information on the assignment of an exposure to a borrower or facility grade or pool, and the estimation of PD and LGD, independently of the assessed effect of the guarantee or credit derivative.

FIRB approach
 1.          For exposures subject to the FIRB approach, an ADI must meet the requirements detailed in Attachment I to APS 112 to recognise a guarantee as eligible CRM. In addition to the eligible guarantors detailed in APS 112, the ADI may also recognise borrowers that are internally rated as eligible guarantors.
 2.          For exposures subject to the FIRB approach, an ADI must meet the requirements detailed in Attachment J to APS 112 to recognise credit derivatives as eligible CRM.

AIRB or retail IRB approach
 1.          For exposures subject to the AIRB or retail IRB approach, an ADI is not limited in its recognition of eligible guarantors or credit protection providers provided it has clearly documented criteria for the types of guarantors or credit protection providers it will recognise for Regulatory Capital purposes. Additionally, the guarantee or credit derivative must be:
        1.           evidenced in writing;
        2.           non-cancellable on the part of the guarantor or credit protection provider;
        3.           in force until the obligation is satisfied in full (to the extent of the amount and tenor of the guarantee or credit derivative); and
        4.           unconditional, such that it does not include any clauses that are outside the direct control of the ADI, or that could prevent the guarantor or credit protection provider from being obliged to pay out in a timely manner in the event that the borrower fails to make the payment(s) due. However, the ADI may recognise guarantees or credit derivatives that only cover the loss remaining after the ADI has first pursued the borrower for payment and has completed the workout process.
 2.          For exposures subject to the AIRB or retail IRB approach, an ADI may recognise the risk mitigating effects of first-to-default credit derivatives but must not recognise second-to-default or nth-to-default credit derivatives.

Attachment F - Risk-weighted assets for purchased receivables
 1.              An ADI must treat purchased receivables as either:
        1.           retail receivables, where the underlying receivables meet the definition of retail exposures; or
        2.           corporate receivables, where the underlying receivables meet the definition of corporate exposures.

Risk-weighted assets for default risk
 1.              When estimating PD and LGD