Credit Conversion Factors Specification¶

CCF application for off-balance sheet exposures under SA, F-IRB, and A-IRB.

Regulatory Reference: CRR Articles 111, 166(8); PRA PS1/26 Art. 111 Table A1, Art. 166C, Art. 166D

Test Group: CRR-D (partial)

SA Approach (CRR Art. 111)¶

F-IRB Approach (CRR Art. 166(8) and Art. 166(10))¶

CRR Article 166 has two F-IRB CCF clauses, and both apply:

• Art. 166(8) prescribes bespoke F-IRB CCFs for the named commitment types (UCC, short-term trade LCs, revolving purchased-receivables UCC, "other credit lines / NIFs / RUFs").
• Art. 166(10) is the residual fallback for off-balance sheet items not in scope of paragraphs 1–8 — it carries its own four-tier scale referencing Annex I risk categories.

The engine routes each row to the correct clause via the is_obs_commitment schema flag:

• True → row is a credit line / NIF / RUF (Art. 166(8)(d) bucket → 75%). Default for facility rows (commitments by construction).
• False → row is an issued OBS item (Art. 166(10) fallback). Default for contingent rows (issued items by construction; performance bonds, warranties, documentary credits, shipping guarantees, etc.).

Callers may override per row — e.g., a contingent that genuinely represents a NIF/RUF can be tagged is_obs_commitment=True to opt back into 75%.

F-IRB CCFs by source (Art. 166(8))¶

F-IRB CCFs by source (Art. 166(10) fallback for issued OBS items)¶

Basel 3.1 SA Changes (PRA PS1/26 Art. 111 Table A1)¶

* Under CRR, "other commitments" were split by maturity: 50% for >1 year (MR), 20% for <=1 year (MLR). Basel 3.1 replaces this with a flat 40% regardless of maturity.

Commitment-to-Issue Lower-Of Rule (Art. 111(1)(c))¶

A commitment to provide an off-balance sheet item receives the lower of the two applicable CCFs: the CCF of the commitment itself and the CCF of the item it commits to provide.

Formula:

CCF_applied = min(CCF_commitment, CCF_underlying)

Where:

• CCF_commitment: The SA CCF for the commitment's own risk type (e.g., OC = 40%)
• CCF_underlying: The SA CCF for the OBS item the commitment is to issue (e.g., FR = 100%)

Examples:

Implementation: Requires underlying_risk_type field on the exposure input. When present and non-null, the CCF is capped at the underlying item's Table A1 CCF. When absent or null, no cap is applied (backward compatible). The lower-of rule flows through to all approaches:

• SA: Direct cap on the SA CCF
• F-IRB (Basel 3.1): Cap on SA CCFs used per Art. 166C
• F-IRB (CRR): Cap on the CRR F-IRB CCF ladder
• A-IRB: Affects the SA CCF used for the 50% floor (CRE32.27) and for non-revolving exposures

Basel 3.1 F-IRB Changes (PRA PS1/26 Art. 166C)¶

Under Basel 3.1, F-IRB CCFs are aligned to SA CCFs (Art. 166C). The separate higher F-IRB CCFs from CRR are removed:

* Under CRR, "Other Commitments" had no separate F-IRB category. These commitments were classified by maturity: >1yr → MR (75%), ≤1yr → MLR (75%). Both received 75% under F-IRB Art. 166(8)(d). Under CRR F-IRB, MLR was 75% for the general case (Art. 166(8)(d)), with a 20% carve-out for short-term trade LCs arising from goods movement (Art. 166(8)(b)). Basel 3.1 removes the CRR F-IRB CCF ladder entirely and applies the SA Table A1 MLR value of 20% uniformly via Art. 166C.

Basel 3.1 A-IRB Changes (PRA PS1/26 Art. 166D / CRE32.27)¶

• Own CCF estimates only permitted for revolving facilities (Art. 166D(1)(a))
• Exception: revolving facilities subject to 100% SA CCF (Table A1 Row 2 — factoring, repos, forward deposits) cannot use own-estimate CCFs even though revolving
• All other off-balance sheet items must use SA CCFs (Table A1)
• The revolving-only restriction is a data classification concern — exposures should carry an is_revolving flag; non-revolving AIRB facilities must use SA CCFs regardless of modelled estimates

A-IRB CCF Floor (CRE32.27)¶

Modelled CCF estimates are subject to a 50% floor relative to the SA CCF:

CCF_applied = max(CCF_modelled, 0.50 × CCF_SA)

Where CCF_SA is the applicable SA CCF from Table A1 for that off-balance sheet item category. This floor applies to all A-IRB CCF estimates including revolving facilities.

A-IRB EAD Floors (Art. 166D(5))¶

Three separate floor tests apply:

1. (a) CCF floor: Own CCF estimates ≥ 50% × SA CCF (see above)
2. (b) Facility-level EAD floor (for partially/fully undrawn revolving facilities using Art. 166D(3) single EAD): EAD ≥ on-balance-sheet EAD + 50% × F-IRB off-balance-sheet EAD
3. (c) Fully-drawn EAD floor (for fully drawn revolving facilities using Art. 166D(4)): EAD ≥ on-balance-sheet EAD (ignoring Art. 166D)

Full-Facility EAD Approach (Art. 166D(3)/(4))¶

As an alternative to the CCF approach (drawn + undrawn × CCF), A-IRB firms may estimate a single facility-level EAD that combines both on-balance sheet and off-balance sheet components into one figure:

• Art. 166D(3) — Partially/fully undrawn revolving facilities: a single EAD estimate replaces the separate on-BS item (Art. 166A(2)) and the revolving loan commitment (Art. 166D(1)). Activated by providing a non-null ead_modelled value.
• Art. 166D(4) — Fully drawn revolving facilities: the own EAD estimate replaces the on-BS accounting value, recognising that a revolving facility's exposure can exceed its current drawn balance due to repayment-and-redraw dynamics.

The ead_modelled input field (Float64, nullable) controls this routing:

• Non-null: Calculator uses the modelled EAD, subject to floors (b)/(c) below
• Null or absent: Calculator uses standard CCF-based EAD (drawn + undrawn × CCF)

Floors for full-facility EAD:

Floor (b) mirrors the 50%-of-SA-CCF principle from floor (a) — the off-balance sheet component receives at least half the SA conversion. Floor (c) prevents the modelled EAD from falling below the current balance sheet exposure.

For the full regulatory detail — including Art. 166D(2) expected drawdown incorporation, Art. 166D(6) unrecognised exposure adjustment, and worked implementation formulas — see the A-IRB specification § Full-Facility EAD.

EAD Calculation¶

EAD = Drawn Amount + Accrued Interest + (Undrawn Amount × CCF)

Where:

• Drawn Amount: Current outstanding balance
• Accrued Interest: Interest due but not yet paid
• Undrawn Amount: Committed but undrawn facility limit minus drawn amount

Provision-Adjusted EAD (Art. 111(1)(a)-(b))¶

When provisions are present (SA only), they are resolved before CCF application using a drawn-first deduction:

provision_on_drawn = min(provision_allocated, max(0, Drawn Amount))
provision_on_nominal = min(provision_allocated - provision_on_drawn, Undrawn Amount)
nominal_after_provision = Undrawn Amount - provision_on_nominal

EAD = (max(0, Drawn Amount) - provision_on_drawn) + Accrued Interest
      + (nominal_after_provision × CCF)

This ensures that provisions reduce the nominal amount before the CCF multiplier is applied, compliant with CRR Art. 111(1)(a)-(b). For IRB/Slotting exposures, provisions are tracked but not deducted — the standard EAD formula applies.

Key Scenarios¶

Annex I item-to-risk-type mapping¶

The engine's risk_type column (values: FR, FRC, MR, MLR, LR, OC) is an abstract bucket. Callers must decide which bucket applies to each concrete off-balance sheet product. This section maps the enumerated Annex I / Table A1 items to the engine's risk_type values. All references to Table A1 are to PS1/26 App 1, Art. 111(1) (docs/assets/ps126app1.pdf, pp.29–32); references to Annex I paragraphs mirror the corresponding CRR (EU 575/2013) provisions.

Table A1 Row 1 — Full Risk issued items (FR, 100%)¶

PDF quote (PS1/26 App 1, p.30): issued off-balance sheet items comprising (a) financial guarantees having the character of credit substitutes including guarantees for good payment of credit facilities; (b) credit derivatives; (c) acceptances; (d) endorsements on bills not bearing the name of another institution or investment firm; (e) irrevocable standby letters of credit having the character of credit substitutes; (f) any other issued off-balance sheet items that have the character of credit substitutes.

Table A1 Row 2 — Certain-drawdown commitments (FRC, 100%)¶

PDF quote (PS1/26 App 1, pp.30–31): "The following types of commitment: (a) transactions with recourse (including factoring and invoice discount facilities); (b) assets purchased under outright forward purchase agreements; (c) asset sale and repurchase agreements …; (d) forward deposits; (e) the unpaid portion of partly-paid shares and securities; and (f) other commitments that have similar economic substance as the types of commitments in points (a) to (e), in particular with regard to having certain drawdowns."

Table A1 Row 3 — Other issued OBS items (MR, 50%)¶

Issued items that do not have the character of credit substitutes and are not captured elsewhere in Rows 1 or 6. Under CRR these mapped to "Medium Risk" (50%); Basel 3.1 retains the 50% in SA but aligns F-IRB down from 75% to 50% via Art. 166C.

Table A1 Row 4 — NIFs/RUFs and UK residential mortgage commitments (MR, 50%)¶

PDF quote (PS1/26 App 1, p.31): "The following commitments: (a) note issuance facilities and revolving underwriting facilities; and (b) UK residential mortgage commitments that are not subject to a conversion factor of 10% or 100%."

Table A1 Row 5 — Other commitments (OC, 40%)¶

PDF quote (PS1/26 App 1, p.31): "Any other commitment that is not subject to a conversion factor of 10%, 50% or 100%."

Under CRR the same commitment was split by maturity (>1yr → 50% MR; ≤1yr → 20% MLR). Basel 3.1 removes the maturity distinction.

Table A1 Row 6 — Medium/low risk issued items (MLR, 20%)¶

PDF quote (PS1/26 App 1, p.31): issued items comprising (a) documentary credits issued or confirmed and other self-liquidating transactions; (b) warranties, tender bonds, performance bonds, advance payment guarantees, retention guarantees, and guarantees not having the character of credit substitutes; (c) irrevocable standby LCs not having the character of credit substitutes; (d) shipping guarantees, customs and tax bonds.

Table A1 Row 7 — Unconditionally cancellable commitments (LR, 10% B31 / 0% CRR)¶

PDF quote (PS1/26 App 1, p.32): "Undrawn commitments which may be cancelled unconditionally at any time without notice, or that effectively provide for automatic cancellation due to a deterioration in an obligor's creditworthiness. Retail credit lines may be considered as unconditionally cancellable if the terms permit the institution to cancel them to the full extent allowable under the applicable consumer protection and related legislation."

Purchased receivables (Art. 166E)¶

PDF quote (PS1/26 App 1, p.118): "An institution shall, for undrawn purchase commitments for revolving purchased receivables, calculate the exposure value using a conversion factor of 40%, except where such commitments meet the criteria set out in point 7 of Column A of Table A1 of paragraph 1 of Credit Risk Standardised Approach (CRR) Part Article 111, in which case the conversion factor shall be 10%."

The default is 40% (Row 5 OC); only where the UCC criteria in Row 7 are met does the 10% CCF apply. This is a Basel 3.1 rule — CRR treated all purchased receivables commitments without a dedicated CCF.

CRR Scenarios¶

Basel 3.1 Scenarios¶