Document ID: chunk:federal_register_of_legislation:F2023L01572:reg:11:p1
Version: federal_register_of_legislation:F2023L01572
Segment Type: reg
Provision Reference: reg 11 (pt 1/5)
Character Range: 61942–64867

11                       Deduction from Common Equity Tier 1 Capital

8.             For tranche maturity (paragraphs 9 to 14 of this Attachment), an ADI must use the linear interpolation between one and five years. For credit rating grade i and tranche maturity (MT), the risk weight  is calculated as:

Tranche maturity
9.             For credit risk regulatory capital purposes, tranche maturity (MT) is the tranche's remaining effective maturity in years and can be measured as either:
(a)          the weighted-average maturity of the contractual cash flows of the tranche:
where:
    CFt denotes the cash flows (principal, interest payments and fees) contractually payable by the borrower in period t.

    The contractual payments must be unconditional and must not be dependent on the actual performance of the securitised assets;[39] or
(b)          on the basis of final legal maturity of the tranche, calculated as:
where:
ML is the final legal maturity of the tranche.
10.         When determining the maturity of a securitisation exposure, an ADI must take into account the maximum period of time it is exposed to potential losses from the securitised exposures.
11.         Where an ADI provides a commitment, the ADI must calculate the maturity of the securitisation exposure resulting from the commitment as the sum of the contractual maturity of the commitment and the longest maturity of the assets to which the ADI would be exposed after a draw has occurred. If those assets are revolving, the longest contractually possible remaining maturity of the asset that might be added during the revolving period applies, rather than the (longest) maturity of the assets currently in the pool.
12.         The treatment in paragraph 11 of this Attachment applies to all other instruments where the risk of the commitment/protection provider is not limited to losses realised until the maturity of that instrument (e.g. total return swaps).
13.         For credit protection instruments that are only exposed to losses that occur up to the maturity of that instrument, an ADI may apply the contractual maturity of the instrument and need not look-through to the protected position.
14.         In all cases, MT is subject to a floor of one year and a cap of five years.

Tranche thickness
15.         To account for tranche thickness, an ADI must calculate the risk weight for a non-senior securitisation exposure as follows:
where:
T equals tranche thickness, and is measured as D minus A, as defined in paragraphs 27 to 31 of this Attachment.

Tranched credit protection
16.         Where an ADI provides tranched credit protection[40] to a securitisation exposure, the relevant risk weights for the different sub-tranches are calculated subject to the following:
(a)          for the sub-tranche of highest priority, the ADI must use the risk weight of the original securitisation exposure; and
(b)          for