Appendix I: the regulatory treatment of asset securitisation--the bis proposals on securitisation.

A. Introduction

Following a protracted effort to address topical regulatory issues involved in the developments of structured finance, such as synthetic asset-backed securitisation, on 28 October 2002 the Basle Committee issued the Second Working Paper on the Treatment of Asset Securitisation (augmented by the Consultative Document to the New Basle Accord of April 2003) in order to sound out the viability of new, more risk-sensitive elements of the securitisation framework it had already set forth in the First Working Paper on Asset Securitisation of October 2001--after a series of consultative papers augmenting the Basle 1988 Capital Accord.

Essentially, the current Basle regulatory framework falls short of providing guidance on the comprehensive treatment of synthetic securitisation structures, liquidity facilities and securitisation transactions of revolving credit exposures containing early amortisation features. Besides improvements to the standardised and the internal-ratings based (IRB) treatment as well as the supervisory formula approach (SFA) in context of capital adequacy in securitisation, the Second Working Paper on the Treatment of Asset Securitisation also requests input from financial institutions concerning the supervisory review component ("Pillar 2", see Basle Committee, 2002a and 2002b). (49) It was mainly put forward in the effort to solicit feedback from banking organisations on the need of future modifications to the existing proposal or adjustments to the way minimum capital requirements are calibrated in asset-backed securitisation. Notwithstanding its tentative nature, it reflects a purposeful attempt to address present gaps in the regulatory treatment of asset-backed securitisation. Given the rapid growth of securitisation markets around the world, adopting a comprehensive regulatory policy in this matter is critical to a viable securitisation framework under a revised Basle Accord. Failure to do so would certainly miss the objectives of financial stability set out by the Basle Committee.

The Second Working Paper on the Treatment of Asset Securitisation and the Consultative Document to the New Basle Accord were preceded by a series of consultations in the effort to develop uniform capital treatment for securitisation exposures (see Exhibit 30). The First Consultative Paper, released by the Securitisation Group of the Basle Committee in June 1999, introduced a general securitisation proposal, which was later expanded upon in the Second Consultative Paper on securitisation in January 2001. At this stage, the drafting of common regulatory policy focused primarily on the standardised treatment to traditional securitisation transactions (see section VII.A. 1 below), where banks were required to assign risk weights to securitisation exposures based on few observable characteristics, such as an issue rating. However, it also presented an initial distinction of sponsoring and investing banks, revolving asset securitisation, cash advancement and liquidity facilities as well as risk transfer requirements for traditional securitisation.

[ILLUSTRATION OMITTED]

After consultation with the industry and further analyses, the Basle Committee issued the First Working Paper on the Asset Securitisation, which comprised an in-depth internal-ratings based (IRB) treatment of securitisation exposures in addition to the standardised, "one-size-fits all" approach. It also sought to initiate further consultation on a concrete treatment of synthetic securitisation, liquidity facilities and early amortisation features, which finally culminated in the Securitisation Framework (Credit Risk--Securitisation Framework, [section]IV of the QIS 3 Technical Guidance) before yet another round of consultation talks commenced to fine-tune the quantitative criteria of higher risk-sensitivity in the determination of minimum capital requirements for issuers and investors of securitisation transactions. The outcome of this latest regulatory effort were the Second Working Paper on the Treatment of Asset Securitisation of October 2002 and the Consultative Document to the New Basle Accord of April 2003, which--among many new qualitative aspects of securitisation regulation, such as supervisory review (Pillar 2) and market discipline (Pillar 3)--also proposed a more ratings-based approach (RBA) for securitisation transactions in line with the distinction of the standardised approach and the internal ratings-based (IRB) approach to the computation of general minimum capital requirements.

We now explain the contents of the First Consultative Paper and the Second Consultative Paper of 2001 before we move on to the specification of the supervisory formula approach (SFA) and the ratings-based approach (RBA) as the proposed foundations of regulatory policy for asset-backed securitisation in the light of the Second Working Paper on the Treatment of Securitisation (Basle Committee, 2002a and 2002b) and the Consultative Document to the New Basle Accord (Basle Committee, 2003).

B. The "Consultative Package"

On 16 January 2001 the Bank for International Settlements (BIS) issued a revised proposal for capital requirements in securitisation. This proposal for an adjustment of regulatory capital and supervision by financial regulators on financial institutions includes a separate 32-page chapter on the securitisation as a comprehensive effort to codify a regulatory framework for structured finance in the funding process of financial intermediaries and firms alike.

It warrants mentioning that the revised proposal does justice to the increasing popularity of synthetic transactions by devoting a separate section on this recent structural innovation of securitisation. The earlier proposals in June 2000 were completely silent on synthetic securitisation. Moreover, besides the critical issue of information disclosure requirements with respect to securitisation transactions, the revised proposal also draws an important distinction between implicit/residual risks and explicit risks in securitisation, the latter being separately dealt with in an additional section. In this context, implicit risk refers to residual risk that is thought of not being legally assumed by an originating or sponsoring bank; however, due to an obligatory commitment to safeguard investors' interests it might still be tacitly recognised to that extent that actions in defiance of this understanding might prejudicially affect the reputation of the bank.

The subsequent exposition outlines the most significant changes stipulated by the recently issued BIS proposal. (50)

1. Originating banks and true sale ("clean break"/"(credit) delinkage")

Granting regulatory capital relief through the transfer of assets off the balance sheet in standard transactions represents the most fundamental regulatory issue for the originating bank of a securitisation transaction. In achieving recognition of a "clean break" the originating bank seeks permission to remove assets from the calculation of risk-based capital ratios. According to the revised proposal the applicability of regulatory capital relief by means of shifting ass assets of off-balance holds once the following minimum conditions are satisfied: (i) the transferred assets have been legally isolated from the transferor; that is, the assets are put beyond the reach of the transferor and its creditors, even in bankruptcy or receivership (this must be supported by a legal opinion); (ii) the transferee is a qualifying special-purpose vehicle (SPV) and the holders of the beneficial interests in that entity have the right to pledge or exchange those interests, and (iii) the transferor does not maintain effective or indirect control over the transferred assets. These conditions are essentially the same as in IAS $9/FASB 140/FASB 125, and therefore, there is no new restriction or qualifying condition being laid down by the regulators. Unless the three previously listed conditions are met, the BIS proposes to retain the respective assets on the books of the originating bank for regulatory accounting purposes (RAP), even if the assets are removed from the books in compliance with GAAP.

2. Investing Banks

In correspondence with previous regulatory advances, the revised proposal follows suit the BIS proposal from June 2000 in proffering the adoption of ratings-based weightings. The following risk weights have been suggested:

In the case of private placements of securitisation transactions, which are unrated, the BIS has adopted the "look- through" approach for senior positions, i.e. these tranches will be deemed to be a fraction of the originator's original cash flows and, thus, will attract the equal risk weighting as the underlying cash flows of the collateral portfolio, whereas the mezzaninc classes may be accorded a 100% risk weighting. For this "look through" approach to be applicable, the following conditions need to hold:

(i) the underlying assets are subject to proportional rights of investors, whilst the SPV must not have any liabilities unrelated to the transaction,

(ii) the securitisation transaction perfectly matches the cash flow stream generated from the underlying asset with the cash flow requirements of the issued securities without any undue reliance on reinvestment income,

(iii) the underlying asset must be fully performing when the securities are issued, and

(iv) the funds that have been earmarked as pay-out to investors must not carry a material reinvestment risk unless they have been disbursed.

3. Sponsoring or managing banks

The notion of sponsoring or managing banks includes banks running securitisation programs or asset backed commercial paper conduits for their customers. These conduits tend to feature an integrated liquidity support mechanism sustained by the sponsoring banks (either programme-wide or pool-specific). According to the 1988 Basle Accord contractually fixed liquidity support on part of the sponsoring or managing bank represents a commitment to lend which is subjected to adamant risk weightings in correspondence to its maturity. While a short term agreement to lend is converted with a 0% risk weighting, any long term agreement is treated as a direct credit substitute, and, thus, attracts a 100% risk weighting.

The revised proposal bears witness to mounting concern with BIS that liquidity support to asset backed commercial paper is akin to a credit enhancement with no apparent, clear-cut practical distinction of credit support and liquidity support. Consequently, BIS has established conditionality parameters to be contemplated in drawing a line between credit support and liquidity support, such that each can be treated in their own distinctive manner:

(i) a facility, fixed in time and duration, must provided to the SPV, not to investors, which is subject to usual banking procedures and, at regular banking terms, subject to usual banking procedures,

(ii) the SPV must have the option at its disposal to seek credit support from elsewhere,

(iii) the terms of the facility must be established on grounds of a clear identification in what circumstances it might be drawn, ruling out the utilisation of the facility neither as a provider of credit support, as a source of permanent revolving funding nor as cover for sustained asset losses,

(iv) the facility should include a contractual provision (on the basis of a reasonable asset quality test) to either prevent a drawing from being used to cover deteriorated or defaulted assets or to reduce or terminate the facility for a specified decline in asset quality, and

(v) the payment of the fee for the facility should not be further subordinated or subject to a waiver or deferral, while the drawings under the facility should not be subordinated to the interests of the note holders.

If the above-mentioned criteria hold, the facility qualifies for a 20% conversion factor as liquidity support. Otherwise the facility will pass as a credit enhancement, which should be treated no different than an investment in a securitisation transaction with a risk weighting based on either internal or external ratings. So if we assume that a sponsoring bank provides a BIS-recognised liquidity facility for a partly-supported asset backed commercial paper conduit at the amount of 100m [euro] of which 40m [euro] have been drawn already, the committed assets for regulatory purposes will be 40m [euro] + (100m [euro]-40m [euro]) * 20% = 52m [euro].

4. Standard securitisation

As opposed to the June 2000 proposal issued by BIS, the recent revised proposal does not only relate essentially to banks investing in securitised investments in the context of standard securitisation transactions (i.e. where the originator transfers assets usually to an SPV), but also envisages banks entering into securitisation transactions in three ways, namely as originator, investors or sponsor/manager.

5. Revolving asset securitisation

In most revolving asset securitisation transactions, the SPV advances funds to the originating institution in the form of a revolving credit, in order to allow the originator to continue generating loans (Grill and Perczynski, 1993). However, in combination with an early amortisation trigger as a common feature in such transactions, the event of amortisation compels the SPV to use cash flows to pay down investors instead of revolving the amount back to the originator. Such amortisation could be triggered in the event of deterioration in the credit quality of the portfolio or generation of fresh accounts, security cover, etc.

Since the probability of early amortisation functions as a sort of credit enhancement on the structure of revolving asset securitisation transactions, BIS considers such a mechanism to have the fallacy of a self-fulfilling downward spiral that eventuates due risk. For one, in the case of a sudden drop in the cash flow position of the underlying collateral portfolio due to a decrease in credit quality, the originator is faced with a withdrawal of revolving credit from the SPV. Additionally, since the inherent waterfall scheme of payment allocation allows the trustees to use the cash to first pay off the investors, the originator's claim in appropriating collections in replenishing the collateral portfolio is subordinated to the payment claims of investors. Thus, the combination of both characteristics of revolving asset securitisation transactions amounts to a sort of an implicit recourse as a bad scenario is likely to stimulate an even worse outcome in cash flow allocation if early amortisation is triggered. Consequently, BIS puts forward to apply a conversion factor of 10% for the off-balance sheet piece of the collateral portfolio, which represents the investors' interest.

6. Credit enhancements

The revised proposal on securitisation requires the originating bank to deduct the amount of the first loss credit enhancement in the securitisation transaction straight from its capital stock. Thus, if a 100m [euro] transaction is conducted and the sponsoring entity provides recourse to the extent of 5m [euro], this amount is the required regulatory capital requirement as it reflects the capital loss or reduction the bank faces in case of default. However, any subsequent loss protection is viewed as a direct credit substitute, provided that a sufficient and significant level of first loss protection is being provided, and, thus, the capital requirement equals the same as for the original underlying asset itself (8%). Following the aforementioned example, let's assume a sponsoring bank provides a second loss provision to the extent of 10m [euro] on a securitisation transaction of 100m [euro] with a first loss protection of 5m [euro] accepted by a third party/external credit enhancer. According to the revised BIS proposal, the bank will need to retain 8% of 10m [euro] as minimum capital requirement, i.e. 0.8% of the total amount of collateral portfolio securitised (100m [euro]).

7. Securitisation tranches

The new proposal for the revision of the Basle Accord also exhibits specifications as to the treatment of minimum capital requirements in relation to the structuring/tranching of securitisation transactions. According to the current regime an entity that provides credit support in the course of a securitisation of assets has to hold capital against any credit risk originating thereof. Such so-called credit enhancement can take the form of a first or second loss facility. Any first loss position would be directly deducted from the capital base, whilst a second loss facility entails an adjustment after it has been valued on an arm's length basis in line with normal credit approval and review processes. The latter is considered to be a credit substitute with a 100% risk weighting. On top of this approach, the New Basle Accord puts forth securitisation tranches to be risk weighted depending on the external assessment (credit rating) of default risk (see 2. Investing banks). Moreover, note that unrated securitisation tranches are deducted from the capital base, senior tranches, which are part of the unrated part of the securitisation collateral (such as in the case of private placements), may be accorded a look-through treatment, i.e. it would be assigned a risk category in correspondence with the underlying asset quality.

For the look-through approach to be applicable the principal criterion is predicated on the fact that investors and not the issuer is effectively exposed to the risk arising from the underlying asset pool. According paragraph 527 of the Consultative Document on the New Basic Capital Accord (2001), the following conditions have to be met: rights on the underlying assets are held either directly by investors in the asset-backed securities or on their behalf by an independent trustee (e.g. by having priority perfected security interest in the underlying assets) or by a mandated representative. In case of a direct claim, the holder of the securities has an undivided pro rata ownership interest in the underlying assets. In case of an indirect claim, all liabilities of the trust or special purpose vehicle (or conduit) that (i) issues the securities are related to the issued securities; (ii) the underlying assets must be fully performing when securities are issued; (iii) the securities are structured such that the cash flow from the underlying assets fully meets the cash flow requirements of the securities without undue reliance on any reinvestment income; and (iv) funds earmarked for the investors but not yet disbursed do not carry a material reinvestment risk.

Even if issuers have fully complied with the conditions outlined above, mezzanine or subordinate tranches banks have invested are still assigned to the 100% risk category (for second loss facilities and other structural enhancements), albeit first loss pieces are directly deducted from capital as mentioned above. Furthermore, the composition of the senior portion of the underlying asset pool under the look-trough approach (granted by national regulators) requires a risk weighting of the unrated tranches equal to the highest risk-weighted asset that is included in the underlying asset pool. However, this method lacks clarification of how the capital charge will be determined. The two reference cases are either the external rating of the securitisation tranches themselves or the residual risk left on the balance sheet of the originating bank following the securitisation of assets. Since speculation surrounding the issue of regulatory arbitrage practices has given rise to the belief that bank banks might have an incentive to shift high quality assets from their balance sheet, the latter approach is given more credence in order to curb fears that a mechanism could be implicitly installed otherwise, which allowed banks to meet regulatory requirements on new practices even with a higher risk profile.

8. Early amortisation features

In the event of early amortisation provisions taking effect, which three an early wind-down of the securitisation programme, such as a certain economic event triggering a significant deterioration of the collateral value, the notional amount of the securitised asset pool is regarded a credit equivalent and charged with a minimum 10% conversion factor. However, this conversion factor may be increased depending on national discretion applied in the assessment of various operational requirements, e.g. provisions regarding rapid amortisation.

9. Cash advancement/liquidity facility

Moreover, the BIS has undertaken efforts to highlight the priority status of reimbursement of cash advances on part of the servicing entity in the context of liquidity or credit support granted to the SPV. Nonetheless, the revised proposal recognises the contractual provision that allows temporary advances to the SPV to ensure uninterrupted payments to investors, as long as "the payment to any investors from the cash flows stemming from the underlying asset pool and the credit enhancement [are] subordinated to the reimbursement of the cash advance." This qualification ensures that the advances are senior claims to reimbursement, i.e. the servicer of the transaction has to retain the right to withhold a commensurate fraction of the subsequent cash collection in order to recoup previous advances made.

C. The "Second Working Paper on the Treatment of Asset Securitisation" and the "Consultative Document"

The Second Working Paper on the Treatment of Asset Securitisation (Basle Committee, 2002a and 2002b) in combination with the Consultative Document to the New Basle Accord (Basle Committee, 2003) aimed to expand the Securitisation Framework (see Exhibit 30) by disciplinary mechanisms and a revised proposal for more prudent risk weightings (RWs) of securitisation transactions on the basis of the supervisory formula approach (SFA) and the ratings- based approach (RBA).

The new regulatory policy put forward by the Consultative Document to the New Basle Accord distinguishes between two methodologies for the treatment of securitisation transactions in the spirit of the general regulatory treatment of credit risk: the standardised approach and the internal ratings-based approach (IRB). (51)

1. Standardised approach for securitisation exposures

[section] 526 Consultative Document to the New Basle Accord (Basle Committee, 2003) explicitly mentions that issuing banks have to choose the same method the regulatory treatment of securitisation transactions as the one used to determine the capital requirements for the type of underlying credit exposures. Hence, for loss of insufficient information about the designated reference portfolio and/or in-house credit risk management capabilities (in order to calculate the IRB risk weightings and the regulatory capital requirement [K.sub.IRB]), (52) the use of the standardised approach for the credit risk of the underlying exposure of the loan book entails the use the standardised approach within the securitisation framework.

The standardised approach does not distinguish originators and investors in securitisation, whereas third-party (non bank) investors are treated differently. Analogous to the standardised approach of ordinary credit exposures the basic procedure the risk weighting of individual claims (in the context of securitisation, read securitised claims or tranches) is determined by the external rating (see Exhibit 32 for a comparison). The risk weights for securitised claims are based on the long-term rating of the securitisation products and decrease in a higher rating grade (similar to "regular" claims, categorised by the type of debtor, e.g. sovereigns, banks (53) and corporates). These risk weights are further distinguished by the type of underlying exposure, i.e. retail portfolios (individual and SME claims), residential property (residential mortgages) and commercial real estate (commercial mortgages). Whereas unrated securitisation exposures with a non-investment grade (external) rating (i.e. below "BBB-") are deducted from capital by issuers (529 [subsection] and 530 Consultative Document to the New Basle Accord), (54) the unrated most senior tranche of a securitisation transaction would be subject to a so-called look-through treatment, i.e. the risk weight is determined by the average risk weighting of the underlying credits. However, as illustrated in Exhibit 32, the capital charges of securitised claims (esp. for non-investment grade tranches) are substantially higher than the charges imposed on corporate and bank credits with the same rating. (55)

2. Internal ratings-based approach (IRB) for securitisation exposures

The IRB approach extends the standardised approach along two dimensions. First, it (i) modifies the external ratings-based assignment of risk weightings (RWs) of the standardised approach by controlling for tranche size, maturity and granularity of securitisation tranches (ratings-based approach (RBA); see Exhibit 32) (56) and (ii) introduces the supervisory formula approach (SFA) as an internal-ratings based (IRB) measure to allow for more regulatory flexibility of issuers (and investors) with more sophisticated credit risk management capabilities, which would otherwise not be accounted for in the standardised approach.

Second, according to [section] 567 Consultative Document to the New Basle Accord (Basic Committee, 2003) the IRB approach departs from an undifferentiated treatment of originators and investors in securitisation markets under the standardised approach. A distinction of originating and investing banks requires that (i) investors (except for those approved by the national supervisors to use supervisory formula approach (SFA) for certain exposures) use the ratings based approach (RBA), and (ii) originators use either the supervisory formula approach (SFA) or the ratings-based approach (RBA), depending on the availability of information about the securitised asset pool (see Exhibit 33).

Originating banks are required to calculate [K.sub.IRB] in all cases and hold capital against held positions (i.e. securitisation claims/tranches) as follows:

(i) unrated tranches:

a. insufficient information to calculate the IRB capital charge [K.sub.IRB]: full capital deduction

b. sufficient information to calculate the IRB capital charge [K.sub.IRB]: capital deduction of tranche sizes ("thickness levels") up to [K.sub.IRB], then supervisory formula approach (SFA)

(ii) rated tranches:

a. inferred rating: risk weight (ratings-based approach (RBA), see Exhibit 33) according to the rating of the subordinate tranche, provided that externally rated tranche is subordinated and longer in maturity.

b. external rating (58): risk weight (ratings-based approach (RBA), see Exhibit 53) (59)

Investing banks must use the ratings-based approach (RBA) if an external rating is available or a rating can be interred. Otherwise, the position must be deducted unless such bank receives supervisory approval to calculate the [K.sub.IRB] for a position and use the SFA as described above for originating banks.

The supervisory formula approach (SFA) determines the IRB capital charge for each tranche k [equivalent to] (S[[l.sub.k] + [a.sub.k]] - S[[l.sub.k]]) x c, where

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] (1)

s = [[K.sub.IRB] / 1 - b] (2)

c = [[summation of].sup.m.sub.k=1] ([a.sub.k] x [c.sub.k]) = notational amount of the transaction (3)

h = (1 - [[K.sub.IRB] / LGD) (4)

v = ([(LGD - [K.sub.IRB.sup.2]) / 1-h] - [s.sup.2]) + ([1 - [K.sub.IRB])[K.sub.IRB] - v] / (1 - h) [tau] (5)

g = [(1 - s) s / [florin]] - 1 (6)

a = g x s (7)

b = g x (1 - s) (8)

d = 1 - (1 - h)(1 - Beta [[K.sub.IRB]; a, b]) (9)

K[[l.sub.k]] = (1 - h)((1 - Beta[[l.sub.k]; a, b]) x [l.sub.k] + Beta[[l.sub.k]; a + 1, b] x s) (10)

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] (11)

where

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] (12)

N = [([summation over (i)] [EAD.sub.i]).sup.2] / [summation over (i)] [EAD.sup.2.sub.i] (13)

where EAD denotes the exposure-at-default of all exposures to the ith obligor in keeping with the general concept of a concentration ratio, where the scale of the weighting factor grows at a geometric rate.

LGD = [summation over (i)] [LGD.sub.i] x [EAD.sub.i] / [summation over (i)] [EAD.sub.i] (14)

where LGD denotes the average loss-given-default of all exposures to the ith obligor. (60)

The methodology of deriving the internal ratings-based capital requirements [K.sub.IRB] is set forth in Section III Credit Risk--the Internal Ratings-based Approach (Basle Committee, 2002a). The supervisory-determined parameters are defined as Floor = 0.0056 (lowest capital charge under the ratings-based approach (RBA), [tau]=l,000 and [omega] = 20, and [l.sup.*.sub.k] solves for the following non-linear equation (61)

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]. (15)

Proportional interest in a single tranche commands a pro-rated share of the capital charge for the entire tranche according the expression above.

Exhibit 31. Risk weights according to the "Consultative Package" (2001)

Rating range     Risk Weighting

AAA       AA-                         20%
A+        A-                          50%
BBB+      BBB-                       100%
BB+       BB-                        150%
B+        D      full capital deduction *
unrated          full capital deduction *

* = regarded as credit enhancement

Exhibit 32. Risk weighting (standardised approach)

                                     Rating Grades

                                        AAA to AA-   A+ to A-

Claims on

Sovereigns                              0%           20%
Banks                     Option 1      20%          50%
                          Option 2      20%          50%
Corporates                              20%          50%
Securitisation products
(long-term rating)                      20%          50%

                                     Rating Grades

                          BBB+ to BB-   BB+ to BB-   B+ to B-

Claims on

Sovereigns                50%           100%         100%
Banks                     100%          100%         100%
                          50%           100%         100%
Corporates                100%          100%         150%
Securitisation products                              Capital
(long-term rating)        100%          350%         deduction

                              Rating Grades

                          below B-      Unrated

Claims on

Sovereigns                150%          100%
Banks                     150%          100%
                          150%          50%
Corporates                150%          100%
Securitisation products   Capital       Capital
(long-term rating)        deduction     deduction

Exhibit 33. Risk weighting (IRB approach). (57)

                             Risk Weight Table (RBA)

                  Risk weights
                    for thick
                    tranches                      Risk
External            backed by                  weights for
rating--             highly                     tranches
Moody's             granular        Base        backed by
(illustrative)        pools         risk      non-granular
                   (N = >100)      weights    pools (N < 6)

Aaa                       7%           12%            20%
Aa                       10%           15%            25%
A                        20%           20%            35%
Baa1                     50%           50%            50%
Baa2                     75%           75%            75%
Baa3                    100%          100%           100%
Bat                     250%          250%           250%
Ba2                     425%          425%           425%
Ba3                     650%          650%           650%
below Ba3 and        Capital       Capital        Capital
unrated            deduction      deduction     deduction

Andreas A. Jobst

London School of Economics and Political Science (LSE) and J.W. Goethe Universitat Frankfurt am Main