EBA Publishes Standards on Conditions for Calculating KIRB Under CRR

To expand the use of the Securitization Internal Ratings-Based Approach (SEC-IRBA), which sits now at the top of the hierarchy of approaches for calculating capital requirements of securitization positions, the CRR amendment accompanying the Securitization Regulation introduces the possibility of using the provisions that normally apply to purchased receivables under the general internal ratings-based (IRB) credit risk framework. This way, eligible institutions may calculate the K_IRB and the corresponding risk parameters, (probability of default: PD and loss given default: LGD), under the provisions of the purchased receivables and then use them as input in the SEC-IRBA, along with other information on the securitization position. The draft RTS specify the conditions under which institutions may use the provisions on purchased receivables to make them fully workable in the context of securitization transactions. For this purpose, retail securitized exposures shall be treated as purchased retail receivables and non-retail securitized exposures as purchased corporate receivables.

The draft RTS covers are the following key areas:

• General approach to the relationship between the IRB rules on purchased receivables and the SEC-IRBA framework
• Eligibility conditions to compute K_IRB under the RTS
• IRB permissions and prior experience
• Eligibility to use the retail risk quantification standards
• Use of proxy data

Related Links

• News Release
• Final Draft RTS (PDF)

Keywords: Europe, EU, Banking, Securitization Framework, KIRB, CRR, SEC-IRBA, IRB, Regulatory Capital, Credit Risk, Basel, EBA