Circular No. 3848 — Establishes the procedures for calculating the Risk Weighting Factors (RWFs) applicable to securitization exposures for the purpose of determining the capital requirement under the standardized approach (RWAcpad), referred to in Resolution No. 4193, of March 1, 2013

CIRCULAR No. 3848, OF SEPTEMBER 18, 2017
Establishes the procedures for calculating the Risk Weighting Factors (RWFs) applicable to securitization exposures for the purpose of determining the capital requirement under the standardized approach (RWACPAD), referred to in Resolution No. 4193, of March 1, 2013.

The Board of Directors of the Central Bank of Brazil, in a session held on September 18, 2017, based on the provisions of arts. 9, 10, item IX, and 11, item VII, of Law No. 4595, of December 31, 1964, and in arts. 3, § 2, and 15 of Resolution No. 4193, of March 1, 2013,

RESOLVES:

TITLE I
PRELIMINARY PROVISIONS
SOLE CHAPTER
SUBJECT MATTER AND SCOPE OF APPLICATION

Art. 1 This Circular establishes the procedures for calculating the Risk Weighting Factors (RWFs) applicable to securitization exposures for the purpose of determining the capital requirement under the standardized approach (RWACPAD), referred to in Resolution No. 4193, of March 1, 2013.

TITLE II
CALCULATION OF THE RWF
CHAPTER I
DEFINITIONS

Art. 2 In calculating the RWF applicable to securitization exposures for the purpose of determining the RWACPAD, the following definitions shall be used:

I - attachment point (A) is the percentage of accumulated losses in the value of the underlying assets from which there is a reduction in the remuneration of a given payment priority class of the securitization;

II - detachment point (D) is the percentage of accumulated losses in the value of the underlying assets from which there is total loss of the value of a given payment priority class of the securitization; and

III - delinquency ratio (W) is the percentage of underlying assets in default, in relation to the total nominal value of the underlying assets, as defined in art. 15 of Circular No. 3648, of March 4, 2013, or more than ninety days past due.

Circular No. 3848, of September 18, 2017 Page 2 of 4

§ 1 For the purposes of this Circular, the definitions of art. 115 of Circular No. 3648, of 2013, shall be used, where applicable.

§ 2 In transactions with securitization issued by a special purpose entity (SPE), all assets of the SPE associated with the securitization process shall be considered among the underlying assets.

§ 3 Processes similar to those defined in art. 115 of Circular No. 3648, of 2013, structured in only one payment priority class shall be treated as an exposure to the underlying assets of the respective process, and for this purpose the provisions of art. 17 of Circular No. 3644, of March 4, 2013, shall apply.

§ 4 The attachment point shall consider all assets made available by the originator.

CHAPTER II
CALCULATION OF THE RWF

Art. 3 The RWF applicable to the value of the securitization exposure shall correspond to:

I - 100/F, if D ≤ KA, where:

a) D = detachment point, referred to in art. 2, item II; and

b) KA = hypothetical capital adjusted for delinquency, referred to in art. 4;

II - 1/F * KSSFA(KA), if A ≥ KA, where:

a) A = attachment point, referred to in art. 2, item I;

b) KA = hypothetical capital adjusted for delinquency, referred to in art. 4; and

c) KSSFA(KA) = capital applicable to the securitization, referred to in art. 5; or

III - the result of the following formula:

RWF = [(KA − A)/(D − A) * 1/F] + [(D − KA)/(D − A) * 1/F * KSSFA(KA)], where:

a) A = attachment point, referred to in art. 2, item I;

b) D = detachment point, referred to in art. 2, item II;

c) KA = hypothetical capital adjusted for delinquency, referred to in art. 4; and

d) KSSFA(KA) = capital applicable to the securitization, referred to in art. 5.

§ 1 F corresponds to the factor defined in art. 4 of Resolution No. 4193, of 2013.

§ 2 The RWF provided for in the caput shall not be less than 25% (twenty-five percent).

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§ 3 The RWF referred to in the caput, item I, shall also be applied if:

I - the underlying assets of the securitization cannot be fully identified;

II - the institution is unaware of the percentage of underlying assets in default or more than 5% (five percent) past due of the total nominal value of the securitization portfolio; or

III - the securitization is associated with re-securitization.

§ 4 It is optional, for securitization exposures for which the detachment point, referred to in art. 2, item II, is equal to 100% (one hundred percent), to apply the RWF corresponding to the weighted average of the RWFs applicable to the underlying assets, in accordance with Circular No. 3644, of 2013.

Art. 4 The hypothetical capital adjusted for delinquency (KA) shall correspond to the result of the following formula:

KA = (1 − W) * KSA + W * 0.5, where:

I - W = delinquency ratio, referred to in art. 2, item III; and

II - KSA = hypothetical capital, which shall correspond to the result of the following formula:

KSA = (RWAHIP * F)/V, where:

a) RWAHIP = amount of risk-weighted assets calculated for the underlying assets, using the standardized credit risk approach;

b) F = factor defined in art. 4 of Resolution No. 4193, of 2013; and

c) V = total exposure value corresponding to the underlying assets calculated in accordance with the standardized credit risk approach.

Sole paragraph. If W cannot be determined, subject to the provisions of art. 3, § 3, item II, KA shall correspond to the result of the following formula:

KA = θ * KA' + (1 − θ) * 1, where:

I - θ = ratio between the nominal value of the underlying assets whose condition of default or more than ninety days past due is known to the institution and the total nominal value of the underlying assets; and

II - KA' = hypothetical capital adjusted for delinquency calculated in accordance with the formula established in the caput for the underlying assets whose condition of default or more than ninety days past due is known to the institution.

Circular No. 3848, of September 18, 2017 Page 4 of 4

Art. 5 The capital applicable to the securitization (KSSFA(KA)) shall correspond to the result of the following formula:

KSSFA(KA) = (e^(−(1/KA)*(D−KA)) − e^(−(1/KA)max(A−KA;0))) / (−(1/KA)(D−KA−max(A−KA;0))), where:

I - e = Napier's constant;

II - KA = hypothetical capital adjusted for delinquency, referred to in art. 4;

III - A = attachment point, referred to in art. 2, item I; and

IV - D = detachment point, referred to in art. 2, item II.

TITLE III
FINAL PROVISIONS

Art. 6 This Circular enters into force on January 1, 2018.

Otávio Ribeiro Damaso
Director of Regulation

This text does not replace the one published in the DOU of 9/20/2017, Section 1, p. 11/12, republished in the DOU of 9/21/2017, Section 1, p. 48/49, and in Sisbacen.