Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p27
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 72950–76205

for SFTs, including securities lending transactions, an ADI must calculate:
        1.           the LGD of the counterparty in accordance with this Attachment;
        2.           EAD in accordance with Attachment G to APS 112; and
        3.           the capital requirement for the credit risk or market risk inherent in any securities the ADI lends or posts as collateral, if that risk remains with the ADI.

Attachment C - Treatment of expected losses and provisions

Calculation of expected loss
 1.              An ADI must separately calculate, for non-defaulted and defaulted exposures, the total EL amount aggregated across the corporate, sovereign, financial institution and retail IRB asset classes. Other than for specialised lending exposures subject to the supervisory slotting approach, the EL amount must be calculated as follows:
        1.           for non-defaulted exposures, the product of PD, LGD and EAD;
        2.           for defaulted exposures under the AIRB or retail IRB approach, the ADI's best estimate of EL given current economic circumstances and the facility's status;[8] and
        3.           for defaulted exposures under the FIRB approach, the product of the relevant supervisory estimates of LGD and EAD.

Expected loss for specialised lending exposures subject to the supervisory slotting approach
 1.              For specialised lending exposures subject to the supervisory slotting approach, the EL amount must be calculated by multiplying EAD by the relevant factor specified in Table 8.

 1.              EL under the supervisory slotting approach
                     Strong  Good  Satisfactory  Weak  Default
Specialised lending  0.4%    0.8%  2.8%          8%    50%

Calculation of eligible provisions
 1.              For exposures in the IRB asset classes, total eligible provisions associated with those exposures are:
        1.           credit related provisions (e.g. any provisions for non-defaulted or defaulted exposures). Any amount included in an ADI's provisions for non-defaulted exposures may only be used as eligible provisions to offset EL for non-defaulted exposures;
        2.           partial write-offs; and
        3.           discounts on defaulted assets.[9]
    Provisions held against securitisation exposures must not be included in total eligible provisions.
 1.              Where an ADI uses the standardised approach to credit risk for a portion of its exposures, it must attribute total provisions on a pro rata basis according to the proportion of RWA subject to the standardised and IRB approaches.
 2.              Where the standardised approach to credit risk is used exclusively by an entity within the Level 2 group, all of the provisions booked within that entity must be attributed to the standardised approach.
 3.              Provisions that are booked by entities within the Level 2 group that exclusively use an IRB approach to credit risk qualify as eligible provisions under paragraph 3 of this Attachment.

Treatment of expected loss and provisions
 1.              An ADI must separately compare the total EL amount for defaulted exposures and non-defaulted exposures with total eligible provisions associated with the relevant exposures.
 2.