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Title[ Part 2: The First Pillar - Minimum Capital Requirements

Section[ A. Individual claims

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1.         Claims on sovereigns

53.       Claims on sovereigns and their central banks will be risk weighted as follows:

                                                                                                                                                                                                                                                                                                                                                

Credit              AAA to            A+ to A-           BBB+ to            BB+ to B-         Below B-          Unrated

Assessment     AA-                                           BBB-

                                                                                                                                                                                                                                                                                                                                                

Risk                 0%                   20%                 50%                 100%               150%               100%

Weight

                                                

                                                                                                                                                                                                                                                                                                                                                

54.       At national  discretion, a lower risk  weight may be applied to banks’ exposures to their sovereign (or central bank) of incorporation denominated in domestic currency and funded¹⁹ in that currency.²⁰ Where this discretion is exercised, other national supervisory authorities may also permit their banks to apply the same risk weight to domestic currency exposures to this sovereign (or central bank) funded in that currency.

55.       For the purpose of risk weighting claims on sovereigns, supervisors may recognise the country risk scores assigned by Export Credit Agencies (ECAs). To qualify, an ECA must publish its risk scores and subscribe to the OECD agreed methodology. Banks may choose to use the risk scores published by individual ECAs that are recognised by their supervisor, or  the  consensus  risk  scores  of  ECAs  participating  in  the  “Arrangement  on  Officially Supported Export Credits”.²¹ The OECD agreed methodology establishes eight risk score categories associated with minimum export insurance premiums. These ECA risk scores will correspond to risk weight categories as detailed below.

                                                                                                                                                                                                                                                                                                                                                

ECA risk scores          0-1                   2                       3                       4 to 6               7

Risk weight                 0%                   20%                 50%                 100%               150%

                                                                                                                                                                                                                                                                                                                                                

56.       Claims on the Bank for International Settlements, the International Monetary Fund, the European Central Bank and the European Community may receive a 0% risk weight.

19   This is to say that the bank would also have corresponding liabilities denominated in the domestic urrency.

20   This lower risk weight may be extended to the risk weighting of collateral and guarantees. See Sections II.D.3 and II.D.5.

21   The consensus country risk  classification  is available on the OECD’s  website (http://www.oecd.org) in the Export Credit Arrangement web-page of the Trade Directorate.

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