For the purposes of this question, the securitised EAD (80% of day 1 EAD of the undrawn RCF) ranks pari passu with the non-securitised EAD (20% of day 1 EAD of the undrawn RCF). In a portfolio of undrawn RCFs, the nominal value of the portfolio and EAD could be different (for example, assuming that the nominal of the undrawn RCF portfolio is 100, the EAD at day 1 of the portfolio is 30 (ccf= 30%) since it is totally undrawn). Also, the EAD of the underlying portfolio may also increase in the future as result of future drawings under the RCFs. If a synthetic securitisation of a portfolio of undrawn RCFs references only a portion (say 80%) of the day 1 EAD (80% of 30= 24) and the securitisation tranches are fixed, (i.e. they do not change according to changes in the EAD as a result of future drawings under the RCFs), it could be understood that only 80% of the day 1 EAD associated with the RCFs (80%*30= 24 in the example) may be risk weighted according to the securitisation framework (i.e. the portion INSIDE the securitisation) and that 20% of the day 1 EAD associated with the RCFs (6 in the example) plus any future increases in EAD (as a result of future drawings) may be risk weighted according to the approved model for the underlying exposures (i.e. the portion OUTSIDE the securitisation). Alternatively to the above, there could be other methods/interpretations to determine the portion of the EAD included INSIDE the securitisation at day 1 and in the future, and the portion of the EAD OUTSIDE the securitisation, for example, that in order to determine the EAD included INSIDE the securitisation, the nominal value of the RCFs instead of the EAD, or, when calculating the EAD, a CCF of 100% instead of 30%, is applied. Such alternative interpretations could result in significantly different RW on the retained tranches (at day 1 and in the future) and thus have an impact on the RWA savings deriving from the transaction (at day 1 and in the future). Therefore the answer to the question is relevant to ensure that the practical calculation of the RWA released in synthetic securitisations of undrawn RCFs is consistently interpreted/calculated in all synthetic securitisations of undrawn credit facilities. For example, when buying funded or unfunded credit protection for an amount equal to 80% of EAD at day 1 of the undrawn RCFs portfolio, can it be considered that 80% of the EAD is covered at day 1 (INSIDE the securitisation) and t that 20% of day 1 EAD plus any future increases in EAD (as a consequence of any drawings that might occur ) will continue to be risk weighted according to the approved IRB model for such exposures (OUTSIDE the securitisation). In other words, and according to Article 249 of CRR, should the originator institution consider such 80% of the EAD as the amount of pool of exposures included in the securitisation and therefore treat them in risk weighting under Chapter 5 (Securitisation) of title II (capital requirements for credit risk) of Part 3 of the CRR? |