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

Section[ 3. Issuer versus issues assessment

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99.       Where a bank invests in a particular issue that has an issue-specific assessment, the risk weight of the claim will be based on this assessment. Where the bank’s claim is not an investment in a specific assessed issue, the following general principles apply.

w In circumstances where the borrower has a specific assessment for an issued debt

— but the bank’s claim is not an investment in this particular debt — a high quality credit assessment (one which maps into a risk weight lower than that which applies to  an  unrated  claim)  on  that  specific  debt  may  only  be  applied  to  the  bank’s unassessed claim if this claim ranks  pari passu  or senior to the claim with an assessment in all respects. If not, the credit assessment cannot be used and the unassessed claim will receive the risk weight for unrated claims.

w In circumstances where the borrower has an issuer assessment, this  assessment typically  applies  to  senior  unsecured  claims  on  that  issuer.  Consequently,  only senior claims on that issuer will benefit from a high quality issuer assessment. Other unassessed claims of a highly assessed issuer will be treated as unrated. If either the issuer or a single issue has a low quality assessment (mapping into a risk weight equal to or higher than that which applies to unrated claims), an unassessed claim on the same counterparty will be assigned the same risk weight as is applicable to the low quality assessment.

100.     Whether the bank intends to rely on an issuer- or an issue-specific assessment, the assessment must take into account and reflect the entire amount of credit risk exposure the bank has with regard to all payments owed to it. ³⁴

101.     In order to avoid any double counting of credit enhancement factors, no supervisory recognition  of  credit  risk  mitigation  techniques  will  be  taken  into  account  if  the  credit enhancement is already reflected in the issue specific rating (see paragraph 114).

34   For example, if a bank is owed both principal and interest, the assessment must fully take into account and reflect the credit risk associated with repayment of both principal and interest.

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