AI Summary of Article 258 Conditions for the use of the Internal Ratings Based Approach (SEC-IRBA)
The SEC-IRBA may be employed by institutions to calculate risk-weighted exposure amounts for securitisation positions, contingent on compliance with specific criteria. These criteria include backing by an IRB or mixed pool, the ability to determine KIRB for a minimum of 95% of underlying exposures, and the availability of adequate information regarding those exposures.
Moreover, competent authorities retain the discretion to prohibit the use of the SEC-IRBA for securitisations exhibiting complex or risky features. Such characteristics may encompass erodible credit enhancements, high internal correlation within exposure pools, repayment dependence on unaccounted risk drivers, or intricate loss allocation structures between tranches.
Article 258 Conditions for the use of the Internal Ratings Based Approach (SEC-IRBA)
1. Institutions shall use the SEC-IRBA to calculate risk-weighted exposure amounts in relation to a securitisation position where the following conditions are met:
(a) the position is backed by an IRB pool or a mixed pool, provided that, in the latter case, the institution is able to calculate KIRB in accordance with Section 3 on a minimum of 95 % of the underlying exposure amount;
(b) there is sufficient information available in relation to the underlying exposures of the securitisation for the institution to be able to calculate KIRB; and
(c) the institution has not been precluded from using the SEC-IRBA in relation to a specified securitisation position in accordance with paragraph 2.
2. Competent authorities may on a case-by-case basis preclude the use of the SEC-IRBA where securitisations have highly complex or risky features. For these purposes, the following may be regarded as highly complex or risky features:
(a) credit enhancement that can be eroded for reasons other than portfolio losses;