Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p19
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 51650–54738

the AIRB approach
 1.          An ADI that uses the AIRB approach must apply a 50 per cent LGD to all senior unsecured exposures, except in the case of senior exposures to borrowers that operate large domestic public infrastructure assets or utilities that meet the requirements detailed in paragraph 10 of this Attachment where the ADI may apply a 25 per cent LGD. The ADI must have a documented policy that details its definition of a senior unsecured exposure.

Subordinated debt
 1.          An ADI must assign a 75 per cent LGD to all subordinated debt, aside from junior liens over commercial real estate or residential real estate that meet the eligibility criteria for recognition as eligible collateral as specified in Attachment E to this Prudential Standard. The ADI must have a documented policy that details its definition of subordination. At a minimum, the definition must include any facility that is expressly subordinated to another facility and also address economic subordination.

Exposures secured by eligible collateral under the FIRB approach
 1.          Where an ADI applies the FIRB approach, it must use the supervisory LGD estimates and collateral haircuts detailed in Table 5 as inputs to the LGD calculation for exposures secured by eligible collateral.

 1.              Supervisory LGD estimates and collateral haircuts for exposures secured by eligible collateral
                                                            LGD (%)  HC (%)
Eligible financial collateral                               0        APS 112 comprehensive approach
Eligible receivables                                        20       40
Eligible residential real estate or commercial real estate  20       40
Other eligible physical collateral                          25       40

 1.          For eligible financial collateral, an ADI must apply the haircuts calculated under the comprehensive approach as set out in Attachment G to APS 112. These haircuts must be adjusted for different holding periods and non-daily remargining or revaluation as detailed in that Attachment.

Methodology for recognition of eligible collateral
 1.          Where an ADI uses the FIRB approach, the LGD applicable to a collateralised transaction must be calculated as the exposure-weighted average of the LGD for the unsecured portion (LGDU) and the LGD for the collateralised portion (LGDSi). Specifically:
where:
        * E is the committed amount. In the case of securities lent or posted, the exposure value must be increased by applying the appropriate haircuts (HE) according to the comprehensive approach for the recognition of financial collateral as detailed in Attachment G to APS 112.
        * ESi is the current value of the collateral after applying the appropriate haircuts for the type of collateral (HC) and for any currency mismatch between the exposure and the collateral. The sum of ESi across all collateral types must be capped at the value of .
      For the purpose of determining ESi for an exposure with a junior lien, the ADI must apply the appropriate haircuts to