1.Net JTD amounts, irrespective of the type of counterparty, shall be multiplied by the default risk weights that correspond to their credit quality, as specified in Table 2:
Credit quality category | Default risk weight |
Credit quality step 1 | 0,5 % |
Credit quality step 2 | 3 % |
Credit quality step 3 | 6 % |
Credit quality step 4 | 15 % |
Credit quality step 5 | 30 % |
Credit quality step 6 | 50 % |
Unrated | 15 % |
Defaulted | 100 % |
2.Exposures which would receive a 0 % risk-weight under the Standardised Approach for credit risk in accordance with Chapter 2 of Title II shall receive a 0 % default risk weight for the own funds requirements for the default risk.
3.The weighted net JTD shall be allocated to the following buckets: corporates, sovereigns, and local governments/municipalities.
4.Weighted net JTD amounts shall be aggregated within each bucket, in accordance with the following formula:
DRCb= max {(Σi ∈ longRWi· net JTDi) – WtS · (Σi ∈ shortRWi· |net JTDi|); 0}
where:
DRCb=the own funds requirement for the default risk for bucket b;i=the index that denotes an instrument belonging to bucket b;RWi=the risk weight; andWtS=a ratio recognising a benefit for hedging relationships within a bucket, which shall be calculated as follows:
For the purposes of calculating the DRCb and the WtS, the long positions and short positions shall be aggregated for all positions within a bucket, regardless of the credit quality step to which those positions are allocated, to produce the bucket-specific own funds requirements for the default risk.
5.The final own funds requirement for the default risk for non-securitisations shall be calculated as the simple sum of the bucket-level own funds requirements.
\mathrm{WtS} = \frac{\sum \mathrm{netJTD}_{\mathrm{long}}}{\sum \mathrm{netJTD}_{\mathrm{long}} + \sum |\mathrm{netJTD}_{\mathrm{short}}|}