RWA Calculator Specifications¶

This section contains the formal specifications for the RWA Calculator. These specifications serve as:

Living documentation - Human-readable descriptions of business rules and regulatory treatments
Acceptance criteria - Clear definition of expected behaviour for each scenario
Traceability - Each scenario maps to acceptance tests via scenario IDs

Specification Index¶

CRR Framework (Current - Until December 2026)¶

Specification	Description	Regulatory Reference
SA Risk Weights	Standardised Approach risk weights by exposure class and CQS	CRR Art. 112-134
Supporting Factors	SME (0.7619) and infrastructure (0.75) factors	CRR Art. 501, 501a
F-IRB Calculation	Foundation IRB with supervisory LGD	CRR Art. 153-154, 161-163
A-IRB Calculation	Advanced IRB with internal estimates	CRR Art. 153-154
Credit Conversion Factors	CCF for off-balance sheet items	CRR Art. 111, 166
Credit Risk Mitigation	Collateral haircuts, guarantees, and overcollateralisation	CRR Art. 192-241
Slotting Approach	Specialised lending categories	CRR Art. 147(8), 153(5)
Provisions	Provision treatment and EL comparison	CRR Art. 159; PRA Rulebook Art. 158
Equity Approach	SA equity (Art. 133), IRB Simple (Art. 155), CIU treatment	CRR Art. 132-133, 155
SA-CCR (Counterparty Credit Risk)	EAD = α·(RC + PFE) for derivatives; adjusted notional (adjusted-notional.md), FX hedging-set treatment (fx-treatment.md), supervisory delta, maturity factor, RC/PFE, WWR, CCP exposures, failed trades	PRA PS1/26 Part Three Title II Chapter 6 (Art. 271–311)

Basel 3.1 Framework (From January 2027)¶

Specification	Description	Regulatory Reference	Test Group
SA Risk Weights	ECRA/SCRA, corporate sub-categories, RE loan-splitting, SA specialised lending	Art. 112–134	B31-A
Foundation IRB	Reduced senior LGD (40%), higher PD floor (0.05%), covered bond LGD, 1.06 removal	Art. 153–163	B31-B
Advanced IRB	LGD floors, post-model adjustments, CCF floor, double default removal	Art. 153–154, 161, 164, 166D	B31-C
Credit Risk Mitigation	Revised 5-band haircuts, equity haircuts, IRB parameter substitution	Art. 191A–241	B31-D, B31-D7
Slotting Approach	Revised weights, maturity split removal, no pre-op PF distinction	Art. 147(8), 153(5)	B31-E
Output Floor	PRA 4-year transitional floor, OF-ADJ capital adjustment	Art. 92(2A)–(2D)	B31-F
Provisions	EL with revised LGD, Art. 158(6A) monotonicity, shortfall/excess	Art. 158–159	B31-G
Defaulted Exposures	Provision-coverage split (100%/150%), RESI RE exception, IRB defaulted	Art. 127, 153(1), 154(1)	B31-K
Equity Approach	New SA equity regime (250%/400%), IRB removal, transitional, CIU	Art. 133, 147A, Rules 4.1–4.8	B31-L
Model Permissions	Art. 147A approach restrictions: FSE, large corporate, institution, equity	Art. 147A; PS1/26 Glossary (LFSE, CRR Art. 142(1)(4))	B31-M

See also the CRR vs Basel 3.1 section for comparison documentation.

Common (Framework-Agnostic)¶

Specification	Description
Hierarchy & Classification	Counterparty hierarchy resolution and exposure classification
Stress Testing	Pipeline integrity tests at 10K–100K scale across all framework/permission combinations

Project¶

Specification	Description
Overview	Executive summary, scope, users, technology stack
Architecture	Pipeline stages, design decisions, data model
Configuration	Framework toggle, IRB permissions, PD/LGD floors
Output & Reporting	Aggregation, output floor, COREP, export
Interfaces	Python API, Marimo UI, CLI
Observability	Logging contract, correlation IDs, format, enforcement
Audit cache	Opt-in per-run parquet snapshots of CRM intermediate frames + manifest
NFRs	Performance, correctness, reliability targets
Milestones	Release plan, risks
Regulatory Compliance	CRR + Basel 3.1 compliance matrix, acceptance tests
Glossary	Regulatory terms

Scenario Coverage by Test Group¶

Group A: Standardised Approach¶

Covers risk weight determination for all SA exposure classes:

Sovereigns (CQS 1-6 and unrated)
Institutions (CQS-based per Art. 120)
Corporates (rated and unrated)
Retail (fixed 75%)
Residential mortgages (LTV-based split at 80%)
Commercial real estate (LTV-based with income cover test)

Group B: Foundation IRB¶

Covers F-IRB calculation components:

PD floor (0.03%)
Supervisory LGD (45% senior, 75% subordinated)
Corporate correlation formula with PD-dependent decay
SME firm-size correlation adjustment
Maturity adjustment
Expected loss calculation
1.06 scaling factor

Group C: Advanced IRB¶

Covers A-IRB with internal estimates:

Internal LGD application
Internal CCF application
FI scalar (1.25x) for large financial institutions

Group D: Credit Risk Mitigation¶

Covers CRM techniques:

Basic CRM (D1–D6): Financial collateral haircuts (Art. 224), FX mismatch (8%), overcollateralisation (Art. 230), guarantee substitution (Art. 213-217), multi-level collateral, maturity mismatch (Art. 238)
Advanced CRM (D7–D14, D9b): non-beneficial guarantees, sovereign guarantees, CDS restructuring exclusion/inclusion, gold/equity collateral, overcollateralisation floor, full CRM chain, mixed collateral types
Provision-CRM interaction (G4–G6): SA provision deduction (Art. 110), multiple provisions, provision + collateral combined waterfall

Group E: Slotting¶

Covers specialised lending:

Slotting categories (Strong to Default)
HVCRE elevated risk weights
Project/Object/Commodities/IPRE finance types

Group F: Supporting Factors¶

Covers CRR-specific factors:

SME supporting factor (tiered: 0.7619 / 0.85)
Infrastructure supporting factor (0.75)

Group G: Provisions¶

Covers provision treatment:

SA provision deduction from exposure
IRB expected loss comparison

Group H: Complex/Combined¶

Covers multi-approach and combined scenarios:

Mixed SA/IRB portfolios
Multi-level hierarchy with CRM
Combined supporting factors with output floor

Group I: Defaulted Exposures¶

Covers defaulted exposure treatment:

F-IRB defaulted (K=0, CRR Art. 153(1)(ii))
A-IRB defaulted (K=max(0, LGD−BEEL), CRR Art. 154(1)(i))
Defaulted with CRM adjustments

Group J: Equity¶

Covers equity exposure treatment:

SA equity flat 100% (CRR Art. 133(2)) — listed, unlisted, PE/VC
IRB Simple risk weights (CRR Art. 155(2)) — exchange-traded 290%, PE diversified 190%, other 370%
CIU treatment — mandate-based, look-through, fallback (CRR Art. 132)
RWA arithmetic validation

Group CCR: Counterparty Credit Risk (SA-CCR)¶

Covers the Standardised Approach for Counterparty Credit Risk on derivative transactions (PRA PS1/26 Part Three Title II Chapter 6, Art. 271–311). The pipeline computes EAD = α · (RC + PFE) with α = 1.4 and feeds the resulting exposure into the SA / IRB credit risk calculators alongside on-balance-sheet exposures:

EAD aggregation formula (Art. 274) — EAD = 1.4 · (RC + PFE)
Replacement Cost (Art. 275) — margined vs unmargined RC, threshold + MTA
PFE multiplier (Art. 278) — over-collateralisation / negative-MtM dampener
Adjusted notional (Art. 280–280f) — asset-class specific notional adjustments
Supervisory delta (Art. 279a) — directional adjustment for options and CDOs
Maturity factor (Art. 279c, 285) — unmargined cap and margined MPOR scaling
Hedging-set partition (Art. 277, 277a) — IR (per currency), FX (per pair), credit/equity (per reference), commodity (per type)
Wrong-way risk (Art. 291) — specific WWR (legal connection) and general WWR alpha multiplier
CCP exposures (Art. 306–307) — QCCP trade leg 2% RW + default fund contribution treatment
Failed trades (Art. 378–380) — unsettled transactions and free deliveries
Legal-enforceability gate (Art. 272(4), 295–297) — netting set recognition criteria

Basel 3.1 Groups¶

Basel 3.1 scenarios mirror the CRR structure with additional framework-specific tests:

B31-A through B31-H: Same structure as CRR groups with Basel 3.1 rule changes
B31-D7: Parameter substitution (IRB guarantor PD substitution, new in Basel 3.1)
B31-F: Output floor phase-in (60%–72.5%, 2027–2030)
B31-K: Defaulted exposures (provision-coverage split, RESI RE exception, IRB K=0)
B31-L: Equity approach (SA 250%/400%, IRB removal, transitional phase-in, CIU treatment)
B31-M: Model permissions (Art. 147A restrictions — FSE, large corporate, institution, equity routing)

Stress Testing Groups¶

Pipeline integrity tests at scale (framework-agnostic):

STRESS-1 to STRESS-14: Row count preservation, column completeness, numerical stability, risk weight bounds, approach routing, exposure class coverage, output floor at scale, error accumulation, summary consistency, EAD consistency, determinism, framework comparison, large-scale 100K, reference uniqueness

See the Stress Testing Specification for full scenario definitions.

Comparison Groups¶

Dual-framework comparison scenarios:

M3.1: Side-by-side CRR vs Basel 3.1 RWA comparison
M3.2: Capital impact analysis with delta decomposition by driver
M3.3: Transitional floor schedule modelling (2027–2030)

Scenario ID Convention¶

Each scenario is tagged with an identifier for traceability:

Prefix	Scenarios	Description
`CRR-A`	A1–A9, A11	CRR Standardised Approach
`CRR-B`	B1–B7	CRR Foundation IRB
`CRR-C`	C1–C3	CRR Advanced IRB
`CRR-D`	D1–D14, D.CCF1–CCF4	CRR Credit Risk Mitigation and CCFs
`CRR-E`	E1–E8	CRR Slotting Approach
`CRR-F`	F1–F7	CRR Supporting Factors
`CRR-G`	G1–G3, G4–G6	CRR Provisions (G4–G6 in CRM spec)
`CRR-H`	H1, H3	CRR Complex/Combined
`CRR-I`	I1–I3	CRR Defaulted Exposures
`CRR-J`	J1–J20	CRR Equity
`CCR-A`	TBD (pending engine batch P8.35–P8.38)	Counterparty Credit Risk — SA-CCR (Art. 271–311)
`B31-A`	A1–A11	Basel 3.1 Standardised Approach
`B31-B`	B1–B7	Basel 3.1 Foundation IRB
`B31-C`	C1–C3	Basel 3.1 Advanced IRB
`B31-D`	D1–D6, D7–D7e, D.CCF1–CCF8	Basel 3.1 Credit Risk Mitigation and CCFs
`B31-E`	E1–E4	Basel 3.1 Slotting Approach
`B31-F`	F1–F3	Basel 3.1 Output Floor
`B31-G`	G1–G3	Basel 3.1 Provisions
`B31-H`	H1, H3	Basel 3.1 Complex/Combined
`B31-K`	K1–K12	Basel 3.1 Defaulted Exposures
`B31-L`	L1–L23	Basel 3.1 Equity Approach
`B31-M`	M1–M12	Basel 3.1 Model Permissions
`M3.1`	—	Dual-framework comparison
`M3.2`	—	Capital impact analysis
`M3.3`	—	Transitional floor modelling
`STRESS`	1–14	Pipeline stress tests (10K–100K scale)
`HIER`	1–6	Hierarchy resolution scenarios
`CLASS`	1–8	Classification scenarios
`CONFIG`	1–6	Configuration scenarios

For Developers¶

These specifications are verified through acceptance tests in tests/acceptance/. See the Testing Guide for details on running tests.