Contents    Prev    Next    Last

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

Section[ 2. Claims on non-central government public sector entities (PSEs)

---

57.       Claims on domestic PSEs will be risk-weighted at national discretion, according to either option 1 or option 2 for claims on banks.²² When option 2 is selected, it is to be applied without the use of the preferential treatment for short-term claims.

58.       Subject to national discretion, claims on certain domestic PSEs may also be treated as claims on the sovereigns in whose jurisdictions the PSEs are established.²³ Where this discretion is exercised, other national supervisors may allow their banks to risk weight claims on such PSEs in the same manner.

22   This is regardless of the option chosen at national discretion for claims on banks of that country. It therefore does not imply that when one option has been chosen for claims on banks, the same option should also be applied to claims on PSEs.

23   The following  examples  outline how PSEs might  be categorised  when focusing on  one specific feature, namely revenue raising powers. However, there may be  other ways of determining the different treatments applicable to different types of PSEs, for instance by focusing on the extent of guarantees provided by the central government:

- Regional governments and local authorities could qualify for the same treatment as claims on their sovereign or central government if these governments and local authorities have specific revenue raising powers and have specific institutional arrangements the effect of which is to reduce their risks of default.

- Administrative  bodies  responsible  to  central  governments,  regional  governments  or  to  local authorities and other non-commercial undertakings  owned  by the governments or local authorities may not warrant the same treatment as claims on their sovereign if the entities do not have revenue raising powers or  other arrangements as described above.  If strict lending rules apply to these entities and a declaration of bankruptcy is not possible because of their special public status, it may be appropriate to treat these claims in the same manner as claims on banks.

- Commercial undertakings owned by central governments, regional governments or by local authorities may be treated as  normal commercial enterprises.  However, if these entities function as a corporate in competitive  markets  even  though  the  state,  a  regional  authority  or  a  local  authority  is  the  major shareholder of these entities, supervisors should decide to consider them as corporates and therefore attach to them the applicable risk weights.

	Contents    Prev    Next    Last