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Ready for Credit Risk Capital Specialised Lending calculations under new Basel 3.1/Basel IV/CRR III & CRD VI?

Under Basel 3.1/Basel IV/CRR III & CRD VI/B3E, the Basel Committee on Banking Supervision (BCBS) introduced the new Standardised Approach (SA) calculations for calculating the credit risk capital charge.

QUESTION - True or false? “Under Basel IV SA-CR, for exposures to corporates, there is no distinguishing between general corporate exposures and specialised lending exposures (i.e., both are treated the same).” The statement is False.

Currently, under Basel II and III there is no specific exposure class for specialized lending under the SA (or TSA – The Standardised Approach).

Basel 3.1 (UK), Basel IV, CRR III & CRD IV, Basel III Finalised Reforms (by the BCBS), Basel III Endgame (USA) introduces new SA-CR calculations for Specialized Lending Exposures. These specialized lending exposures are those where the lending activity possesses some unique characteristics (i.e., the exposure is not related to real estate, it is typically to an entity that finances and operates physical assets).

The banks incorporated in jurisdictions that allow the use of external ratings will assign to these exposures the RW determined by the issue-specific (financial instrument) external ratings (table below) but not issuer (borrower/obligor) ratings.

Where an issue-specific external rating is not available, and regarding those of banks from jurisdictions that do not allow external ratings, the RW applied is as noted (table below).

Note: In the case of Specialised Lending that is unrated, the risk weight is 100%. 

RiskTAE have for sale pre-built & ready to go Excel model solutions for ICAAP, ILAAP and planning for RRP. The ICAAP Models are for current Basel II, 2.5 & III and for the upcoming Basel 3.1/Basel IV, CRR III & CRD VI, B3E, and Basel III Finalised Reforms (by the BCBS).

If you wish additional details or a walkthrough, please contact me.

In the next few articles, I’ll continue to discuss issues related to the new capital requirements in further detail.  

* The so called “Basel IV*” Accord is known by various different names, including: Basel 3.1 (in the UK), Basel IV, CRR III & CRD VI (in the EU), B3E (Basel III Endgame in the USA), Basel III Finalised Reforms (by the BCBS), etc.

By: Mark Dougherty, Founder & Managing Director, RiskTAE (Risk Talent, Risk Advisory & Risk Education)

Email: mark.dougherty@risktae.com