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

Section[ 5. Short-term/long-term assessments

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103.     For  risk-weighting  purposes,  short-term  assessments  are  deemed  to  be  issue- specific. They can only be used to derive risk weights for claims arising from the rated facility. They  cannot  be  generalised  to  other  short-term  claims,  except  under  the  conditions  of paragraph 105. In no event can a short-term rating be used to support a risk weight for an unrated long-term claim.  Short-term  assessments may only be used for short-term claims against banks and corporates. The table below provides a framework for banks’ exposures to specific short-term facilities, such as a particular issuance of commercial paper:

Credit assessment       A-1/P-1 ³⁶        A-2/P-2              A-3/P-3         Others ³⁷

Risk weight                 20%                   50%                  100%            150%

104.     If a short-term rated facility attracts a 50% risk-weight, unrated short-term claims cannot attract a risk weight lower than 100%. If an issuer has a short-term facility with an assessment that warrants a risk weight of 150%, all unrated claims, whether long-term or short-term, should also receive a 150% risk weight, unless the bank uses recognised credit risk mitigation techniques for such claims.

105.     In cases where national supervisors have decided to apply option 2 under the standardised approach to short term interbank claims to banks in their jurisdiction, the inter- action with specific short-term assessments is expected to be the following:

w The  general  preferential  treatment  for  short-term  claims,  as  defined  under paragraphs 62 and 64, applies to all claims on banks of up to three months original maturity when there is no specific short-term claim assessment.

w When there is a short-term assessment and such an assessment maps into a risk weight that is more favourable (i.e. lower) or identical to that derived from the general preferential treatment, the short-term assessment should be used for the specific  claim  only.  Other  short-term  claims  would  benefit  from  the  general preferential treatment.

w When a specific short-term assessment for a short term claim on a bank maps into a less favourable (higher) risk weight, the general short-term preferential treatment for interbank claims cannot be used. All unrated short-term claims should receive the same risk weighting as that implied by the specific short-term assessment.

106.     When a short-term assessment is to be used, the institution making the assessment needs to meet all of the eligibility criteria for recognising ECAIs as presented in paragraph 91 in terms of its short-term assessment.

36   The notations follow the methodology used by Standard & Poor’s and by Moody’s Investors Service. The A-1

rating of Standard & Poor’s includes both A-1+ and A-1-.

37   This category includes all non-prime and B or C ratings.

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