Basel for Funds – Credit Risk Mitigation

Assessment

& calculated collateral value of funds

Reduce Risk

weight exposure of collateralized loans

Free Up Capital

for additional lending opportunities

What are the challenges of Basel final?

Transition to Basel 3.1, 4, End game; expected to increase banks’ capital requirements:

  • Introduction of capital output floor where Internal Model approach < 72.5% of standardized approach
  • Revised Credit risk weights (RWAs)
  • Increased risk sensitivities for rated & unrated exposures

Use Case

Leverage the capital reducing effect of shares in funds as collateral to reduce capital requirements:

  • Basel rules permit eligible Funds as collateral to mitigate credit risk
  • Including UCITS AIFs Mutual funds & ETFs
  • Look-through approach to calculate the weighted average haircut of the share class
  • Identify final collateral value to reduce counterparty exposure
  • Free up capital and increase lending activity

Who is this for?

Role Role in Collateral Policy
Risk Management Defines credit risk, eligibility & haircuts. Sets policy, criteria & risk limits
Credit Department Structures loan terms, collateral usage
Front Office / Lending Desk Proposes & negotiates collateral, client-facing
Legal & Compliance Ensures enforceability and compliance
Collateral Management Operationalizes eligibility & valuation
Treasury  Focus on liquidity, Securities Lending/repo
Risk/Collateral Committees Strategic oversight, policy

With the Right Data, Funds become an alternative asset class to Collateralise Loans

Full value chain service

  • Funds decomposition & weights
  • Basel Eligibility/haircuts calculated for share class
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Automation & operational efficiency

  • Reduce costs on IT systems & risk management
  • “End to end” automated workflow
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Capital optimization

  • Leverage risk-reducing effect of funds as collateral
  • Expand pool of available high-quality collateral
  • Unlock capital for new lending opportunities
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Why SIX?

  • Greater precision: compute accurate risk-weighted exposure amounts
  • Lower capital charges: by applying regulatory look-through approach
  • Transparency & Compliance: meets regulatory criteria for granularity & provenance 

Additional Basel data components

Comprising four specific areas of the Basel framework as transposed in EU & Swiss regulations. Our rulesets can adapted to support additional country specific rules:

Classification of financial instruments, which are eligible as High Quality Liquid Assets as level 1, 2A or 2B according to the regulatory standards and associated haircuts.

Find out the delivery platforms
Delivery