Document ID: chunk:federal_register_of_legislation:F2023L01572:reg:11:p4
Version: federal_register_of_legislation:F2023L01572
Segment Type: reg
Provision Reference: reg 11 (pt 4/5)
Character Range: 69957–72698

Unfunded reserve accounts, such as those to be funded from future receipts from the underlying exposures (e.g. unrealised excess spread) and assets that do not provide credit enhancement, must not be included in the calculation of A and D.
31.         In the case where an ADI provides tranched credit protection to a securitisation exposure, the parameters A and D must be calculated separately for each of the sub-tranches as if they would have been directly issued as separate tranches at the inception of the transaction. The value for KSA is calculated on the underlying pool of exposures of the original transaction. For a sub-tranche of lower-priority, the ADI must treat the exposure as a non-senior securitisation exposure even if the original securitisation exposure prior to protection is a senior securitisation exposure.

Capital requirements as calculated under the Supervisory Formula Approach
32.         The capital charge under the supervisory formula is calculated as follows:
where:
KSSFA(KA) is the capital requirement per unit of the securitisation exposure, e is the base of the natural logarithm and the variables a, u, and l are defined as follows:

33.         The regulatory capital requirement or risk weight assigned to a securitisation exposure is calculated as follows:
(a)          when D for a securitisation exposure is less than or equal to KA, the exposure must be deducted from Common Equity Tier 1 Capital;
(b)          when A for a securitisation exposure is greater than or equal to KA, the risk weight of the exposure, expressed as a percentage, equals KSSFA(KA) multiplied by 12.5; and
(c)          when A is less than KA and D is greater than KA, the applicable risk weight is calculated according to the following formula:
34.         The resulting risk weight is subject to a risk weight floor of 15 per cent.

APRA's discretion where capital requirement is uncertain
35.         If the nature of a particular securitisation exposure is such that it is uncertain whether or how much regulatory capital is to be held in relation to the exposure under this Attachment, APRA may agree the amount of regulatory capital, or a method for calculating it, having regard to the nature of the exposure and the general approach taken to similar exposures under this Prudential Standard.

Mapping of rating grades for Standard and Poor's, Moody's and Fitch
36.         For the purposes of Table 1 of this Attachment, where the ECAI is Standard and Poor's, Moody's or Fitch, the ratings are to be mapped to the relevant credit rating grades as shown in Table 3 below.
Table 3: Recognised short-term ratings and equivalent credit rating grades
Credit rating grade  Standard and Poor's  Moody's            Fitch