Document ID: chunk:federal_register_of_legislation:F2023L01572:reg:11:p2
Version: federal_register_of_legislation:F2023L01572
Segment Type: reg
Provision Reference: reg 11 (pt 2/5)
Character Range: 64591–67569

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 the 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.

Supervisory Formula Approach
17.         To calculate the regulatory capital requirement for a securitisation exposure using the Supervisory Formula Approach, an ADI must determine the following inputs:
(a)          the capital requirement under APS 112 had the underlying exposures not been securitised (KSA);
(b)          the ratio of delinquent underlying exposures to total underlying exposures in the pool (W);
(c)          the tranche attachment point (A); and
(d)          the tranche detachment point (D).

Definition of KSA
18.         KSA is expressed in decimal form and is the weighted average capital charge of the entire portfolio of underlying exposures, which is calculated as the ratio of (a) the risk-weighted asset amounts under APS 112 multiplied by 8 per cent to (b) the sum of the exposure amounts of underlying exposures.[41]
19.         For structures involving an SPV, all of the SPV's exposures related to the securitisation are to be treated as exposures in the pool. Exposures related to the securitisation that are treated as exposures in the pool include assets in which the SPV may have invested, comprising reserve accounts, cash collateral accounts and claims against counterparties resulting from interest rate or currency swaps.[42] An ADI may exclude the SPV's exposures from the pool for capital calculation purposes if the ADI can demonstrate that the risk of the SPV's exposures is immaterial or that it does not affect the ADI's securitisation exposure.
20.         In the case of funded synthetic securitisations, any proceeds of the issuances of credit-linked notes or other funded obligations of the SPV that serve as collateral for the repayment of the securitisation exposure, and for which the ADI cannot demonstrate that they are immaterial, must be included in the calculation of KSA if the default risk of the collateral is subject to the tranched loss allocation.[43]
21.         In cases where an ADI has set aside a specific provision or has a non-refundable purchase price discount on an exposure in the pool, KSA must be calculated using the gross amount of the exposure without the specific provision or non-refundable purchase price discount.

Definition of delinquent underlying exposures (W)
22.         Delinquent underlying exposures are underlying exposures that are 90 days or more past due, subject to bankruptcy or insolvency proceedings, in the process of foreclosure, held as real estate owned or in default, where default is