In case of a re-securitisation, in order to calculate the value for ELGD under the Supervisory Formula Method, shall an LGD of 100 % only be applied to those securitised exposures that are securitisation positions or to all securitised exposures where all securitised exposures are to be treated under the Internal Ratings Based Approach (IRBA)?
Calculating capital requirements under the Supervisory Formula Method (SFM) according to Article 262 CRR requires several input parameters. One of these input parameters is ELGD (exposure-weighted average loss-given-default) which itself requires determining the LGDi for each obligor of the securitised exposures underlying the securitisation. According to Article 262(1) CRR 1cLGDi = the average LGD associated with all exposures to the ith obligor, where LGD is determined in accordance with Chapter 3. In the case of re-securitisation, an LGD of 100 % shall be applied to the securitised positions. 1d In case of a re-securitisation, where the underlying portfolio comprises securitisation and non-securitisation exposures ( 1cmixed pool 1d), from the wording of Article 262(1) CRR it is not clear, if in order to calculate the value of LGDi for a certain obligor (a) an LGD of 100 % shall be applied only to those securitised positions which are securitisation exposures and the LGD determined in accordance with Chapter 3 shall be used for those underlying exposures which are non-securitisation positions, or (b) an LGD of 100 % shall generally be applied to all securitised exposures underlying the re-securitisation.
The Supervisory Formula Method (SFM) set out in Article 262 CRR requires for the LGDi that the average LGD for all exposures is determined in accordance with Part Three, Title II, Chapter 3 of the CRR. In case of a re-securitisation an LGD of 100% shall be applied to securitised positions. The wording implies that an LGD of 100% shall apply only to the positions underlying a re-securitisation (as defined in point (63) of Article 4(1) CRR) that are securitisation positions as defined in point (62) of Article 4(1) CRR and not to the other exposures from the underlying pool of the re-securitisation.
For the other exposures from the underlying pool that are not re-securitised securitisation positions the LGD to be applied is the average LGD provided that it can be determined under the Internal Ratings Based Approach, in accordance with Article 259(1)(b) CRR.