Method to calculate RWAs in relation to a securitisation position where the underlying pool comprises specialized lending exposures

Which method according to Article 254 CRR is to be used to calculate RWAs in relation to a securitisation position which is backed by an IRB pool composed by specialized lending exposures?

Regulation (EU) No. 2017/2401 defines the new methods (SEC-IRBA, SEC-SA, SEC-ERBA) to calculate risk-weighted exposure amounts in relation to a securitisation position. According to Article 258 para 1 lit a) CRR institutions shall use the SEC-IRBA to calculate RWAs in relation to a securitisation position where 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. IRB pool is defined pursuant to Article 242 para 7 CRR as a pool of underlying exposures of a type in relation to which the institution has permission to use the IRB Approach and is able to calculate risk- weighted exposure amounts in accordance with Chapter 3 for all of these exposures. The institution has permission to apply slotting approach for specialized lending exposure and thus calculate RWAs according to Article 153 para 5 CRR. As this approach is covered in Chapter 3 CRR, the understanding is that the pool with underlying specialized lending exposures can be considered as the IRB pool. As a parameter for SEC-IRBA, the exposure-weighted average LGD of the pool of underlying exposures has to be determined, it is not clear if SEC-IRBA should be applied, as there is no LGD in the slotting approach. The same issue occurs if there is a mixed IRB pool that includes at least one specialized lending exposure. On the other hand side, applying SEC-SA would mean for the institution using IRB approach a new RWA calculation for the underlying specialized lending exposures according to Standardised approach (Chapter 2), as defined for KSA in Article 255 para 6 CRR. In addition, we also understand that it is not ruled out that the underlying pool is comprised by specialized lending exposures. What is ruled out according Article 2 para 1 lit. c) of Regulation (EU) No. 2017/2402 is that securitization creates exposures which possess characteristics of specialized lending exposures.