SA Risk Weights Specification¶

Standardised Approach risk weights by exposure class and credit quality step.

Regulatory Reference: CRR Articles 112-134

Test Group: CRR-A

Requirements Status¶

Due Diligence Obligation — No CRR Equivalent¶

CRR has no SA-specific due diligence obligation. The Basel 3.1 equivalent is Art. 110A — a framework-wide obligation introduced by PRA PS1/26 with no CRR predecessor. Under CRR the SA calculator does not emit the SA004 warning and ignores the due_diligence_override_rw column.

Sovereign Exposures (CRR Art. 114)¶

Domestic currency: UK central government and Bank of England exposures denominated and funded in sterling receive 0% risk weight (Art. 114(4)). Third-country sovereign exposures in their domestic currency may also receive 0% where the jurisdiction's supervisory regime is deemed equivalent (Art. 114(7) — applies to EU member states). The ECB receives 0% unconditionally (Art. 114(3)).

RGLA Exposures (CRR Art. 115)¶

Regional governments and local authorities. Two possible treatments:

Sovereign-Derived Treatment — Table 1A (Art. 115(1)(a))¶

Where RGLA exposures lack their own ECAI rating, use the sovereign's CQS with Table 1A:

Under PRA rules, UK devolved administrations (Scotland, Wales, Northern Ireland) receive 0% risk weight.

Own-Rating Treatment — Table 1B (Art. 115(1)(b))¶

Where RGLA exposures have their own ECAI rating, use Table 1B:

UK local authorities: All UK local authorities receive 20% risk weight per PRA designation.

Religious communities treated as RGLAs (Art. 115(3)): Exposures to churches or religious communities constituted in the form of a legal person under public law shall, in so far as they raise taxes in accordance with legislation conferring on them the right to do so, be treated as exposures to regional governments and local authorities (CRR Art. 115(3), crr.pdf p.114). Both eligibility limbs must be satisfied — the entity must be a public-law legal person and must hold statutory tax-raising powers. Where eligible, the exposure is routed into the Art. 115(1) RGLA tables above (sovereign-derived Table 1A or own-rating Table 1B as applicable); CRR Art. 115(3) further provides that the central-government treatment in Art. 115(2) does not apply, and that the IRB permanent-partial-use exclusion in Art. 150(1)(a) is not engaged for these exposures. This is an edge-case provision aimed at jurisdictions (notably Germany under the Körperschaftsteuergesetz) where established churches retain a constitutional right to levy church tax; UK-resident religious bodies generally do not satisfy the tax-raising limb.

Sterling-funded UK RGLAs (Art. 115(5)): Exposures to regional governments or local authorities of the United Kingdom that are not treated as central government under Art. 115(2)–(4) and are denominated and funded in pounds sterling shall be assigned a risk weight of 20%. This treatment is maturity-independent — it applies regardless of the original or residual maturity of the exposure and regardless of the counterparty's CQS.

PSE Exposures (CRR Art. 116)¶

Public sector entities have three sub-treatments:

Sub-treatment 1 — Sovereign-Derived — Table 2 (Art. 116(1))¶

UK PSEs without own ECAI rating use the sovereign's CQS with Table 2:

Sub-treatment 2 — Own-Rating — Table 2A (Art. 116(2))¶

UK PSEs with own ECAI rating use Table 2A:

Sub-treatment 3 — Competent-Authority Equivalence (Art. 116(4))¶

In exceptional circumstances, UK PSE exposures may be treated as exposures to the central government, regional government or local authority of the United Kingdom where all of the following apply (CRR Art. 116(4), crr.pdf p.115):

1. An appropriate guarantee exists from that central government, regional government or local authority; and
2. The competent authorities of the United Kingdom are of the opinion that there is no difference in risk between the guaranteed PSE exposure and a direct exposure to the guaranteeing government or authority.

The effect is to substitute the guarantor's sovereign or RGLA risk weight for the Art. 116(1)/(2) PSE treatment. This is a competent-authority discretion — not a routine election — and the substitute tier (central / regional / local) must match the tier providing the guarantee.

Sub-treatment 4 — Third-Country PSE Equivalence (Art. 116(5))¶

Where a third-country competent authority applies supervisory and regulatory arrangements at least equivalent to those applied in the UK and treats exposures to its own PSEs under paragraph 1 or 2, UK institutions may risk weight exposures to those third-country PSEs in the same manner. Otherwise, a risk weight of 100% applies (CRR Art. 116(5), crr.pdf p.115). Equivalence is determined by the Treasury by regulations.

Short-term exposures (≤ 3 months): UK PSE exposures with original effective maturity ≤ 3 months receive 20% risk weight (Art. 116(3)). No domestic currency condition required for PSEs.

MDB Exposures (CRR Art. 117)¶

Named MDBs at 0% (Art. 117(2))¶

The following 16 MDBs receive a 0% risk weight:

1. International Bank for Reconstruction and Development (IBRD / World Bank)
2. International Finance Corporation (IFC)
3. Inter-American Development Bank (IDB)
4. Asian Development Bank (ADB)
5. African Development Bank (AfDB)
6. Council of Europe Development Bank (CEB)
7. Nordic Investment Bank (NIB)
8. Caribbean Development Bank (CDB)
9. European Bank for Reconstruction and Development (EBRD)
10. European Investment Bank (EIB)
11. European Investment Fund (EIF)
12. Multilateral Investment Guarantee Agency (MIGA)
13. International Finance Facility for Immunisation (IFFIm)
14. Islamic Development Bank (IsDB)
15. Asian Infrastructure Investment Bank (AIIB)
16. International Development Association (IDA)

Non-Named MDBs — Institution Treatment (Art. 117(1))¶

MDBs not on the 0% list are treated "in the same manner as exposures to institutions" per Art. 117(1). They use the institution risk weight tables — Art. 120 Table 3 for ECAI-rated institutions, Art. 121 Table 5 for sovereign-derived. No separate CRR risk weight table exists for MDBs.

Art. 117(1) excludes short-term preferential treatment (Art. 119(2), 120(2), 121(3)) for MDB exposures — MDBs cannot receive reduced short-term risk weights available to institutions.

Art. 117(1) also names four non-0% MDBs: Inter-American Investment Corporation, Black Sea Trade and Development Bank, Central American Bank for Economic Integration, and CAF — Development Bank of Latin America.

International Organisations (CRR Art. 118)¶

The following international organisations receive a 0% risk weight:

• European Union (EU)
• International Monetary Fund (IMF)
• Bank for International Settlements (BIS)
• European Financial Stability Facility (EFSF)
• European Stability Mechanism (ESM)

Institution Exposures (CRR Art. 120-121)¶

Short-Term Institution Exposures (CRR Art. 120(2), Art. 121(3))¶

Rated institutions with residual maturity ≤ 3 months receive preferential risk weights under Art. 120(2). Unrated institutions with maturity ≤ 3 months receive 20% under Art. 121(3).

Table 4 — Short-Term Preferential (CRR Art. 120(2))

Unrated Institutions — Sovereign-Derived (CRR Art. 121, Table 5)¶

Where an institution lacks its own ECAI rating, risk weights are derived from its sovereign's CQS:

Table 5 — Unrated Institution Sovereign-Derived (CRR Art. 121(1))

Unrated institutions with residual maturity ≤ 3 months receive 20% regardless of sovereign CQS (Art. 121(3)).

Trade Finance Preferential Treatment for Unrated Institutions (CRR Art. 121(4))¶

CRR Art. 121(4) carves out a dedicated preferential channel for trade-finance exposures to unrated institutions, overriding both the sovereign-derived Table 5 weights for unrated-sovereign jurisdictions (Art. 121(2), 100%) and the general short-term unrated 20% (Art. 121(3)).

Risk weights. Two cases only — Art. 121(4) does not take a CQS input; the preferential weight is fixed at the article level:

The 50% / 20% values replace what the exposure would otherwise receive under Art. 121(1) Table 5 (sovereign-derived 20%–150%), Art. 121(2) (unrated sovereign jurisdiction → 100%), and Art. 121(3) (unrated short-term flat 20%). The "notwithstanding paragraphs 2 and 3" head-clause ensures the Art. 121(4) result binds in priority over those subordinate paragraphs.

Eligibility — what counts as "trade finance" under Art. 121(4).

Art. 121(4) routes through Art. 162(3) second subparagraph point (b) — the AIRB maturity-floor list of qualifying short-term exposures — which describes:

That cross-reference further pulls in the Art. 4(1)(80) defined term:

Cumulative eligibility — all five conditions must hold for the Art. 121(4) preferential to apply:

1. Counterparty type — exposure is to an unrated institution (i.e. an institution falling within Art. 121 because no nominated ECAI assessment is available — Art. 119(1)). Rated institutions route through Art. 120 / Table 4 (general short-term) or Table 4A (Basel 3.1 short-term ECRA), not Art. 121(4).
2. Trade finance product — financing or guarantees connected to the exchange of goods and services (Art. 4(1)(80)).
3. Self-liquidating — repayment funded by the underlying trade flow, not by a refinancing facility (Art. 162(3) second subparagraph point (b)).
4. Connected to goods or services exchange — the financing is documented as trade-related, not a general working-capital facility branded as trade finance.
5. Residual maturity — ≤ 1 year (the Art. 4(1)(80) "generally less than one year" envelope, hard-edged in Art. 162(3) point (b) at "up to one year"). The 20% reduction below the 50% base further requires residual maturity ≤ 3 months.

Sovereign linkage — none. Despite sitting inside Art. 121 ("sovereign-derived approach for unrated institutions"), Art. 121(4) is not keyed on the sovereign's CQS. The 50%/20% weights apply uniformly regardless of whether the institution is incorporated in a CQS 1 (UK / equivalent) or CQS 6 jurisdiction. This contrasts with Art. 121(1) Table 5, which steps the unrated institution weight from 20% (sovereign CQS 1) up to 150% (sovereign CQS 6).

Distinction from Art. 122 / 121(3) short-term channels. Three short-term windows can apply to an unrated institution exposure; the most favourable applicable weight wins:

Note the maturity-test difference: Art. 121(3) uses original effective maturity (≤ 3 months); Art. 121(4) uses residual maturity (≤ 1 year for the 50% weight, ≤ 3 months for the further-reduced 20% weight). A trade-finance exposure with original maturity 6 months but residual maturity 2 months at reporting date qualifies for the Art. 121(4) 20% under the residual test even though it fails the Art. 121(3) original-maturity test.

Worked example — UK trade finance to unrated foreign institution.

A 9-month £10m self-liquidating trade-finance facility (a confirmed letter of credit financing a goods import) extended to a Vietnam-incorporated bank without a nominated ECAI rating, residual maturity at reporting date 7 months. Vietnam sovereign sits at CQS 4 (Art. 114(2) Table 1 → 100% sovereign).

1. Eligibility checks: counterparty = unrated institution (yes); product = self-liquidating trade-related letter-of-credit financing (yes — Art. 162(3) second subparagraph point (b)); residual maturity ≤ 1 year (yes, 7m); residual maturity ≤ 3 months (no).
2. Apply Art. 121(4): residual maturity > 3 months but ≤ 1 year → 50%.
3. Compare against alternative paths:
   • Art. 121(1) Table 5 with sovereign CQS 4 → 100%. Worse, displaced by Art. 121(4) "notwithstanding paragraph 2".
   • Art. 121(3) requires original effective maturity ≤ 3 months — original is 9 months, fails. Path closed.
   • Art. 119(2)/(3) requires sterling denom and funding (the borrower's national currency would be VND); a £-denominated facility fails the "denominated and funded in the national currency of the borrower" test. Path closed.
4. Final risk weight: 50%. RWA = £10m × 50% = £5m.

Had residual maturity been 2 months at reporting date, Art. 121(4) would yield 20% directly — RWA = £10m × 20% = £2m — beating the Art. 121(1) Table 5 result (100%) by a factor of five.

National-Currency Short-Term Preferential Treatment (CRR Art. 119(2), 119(3))¶

CRR provides a separate sovereign-derived preferential path for institution exposures in the borrower's national currency with residual maturity ≤ 3 months. This is distinct from Art. 120(2) Table 4 (ECAI-rated short-term) and Art. 121(3) (unrated short-term 20%) — those two articles carry the general ≤ 3-month preferential windows irrespective of currency, while Art. 119(2)/(3) layers an additional sovereign-derived channel on top for the national-currency subset.

Eligibility (cumulative). All four conditions must hold:

1. Counterparty type — exposure is to an institution (Art. 119 scope; the preferential is excluded for RGLAs by Art. 115(1) and for MDBs by Art. 117(1)).
2. Residual maturity — three months or less. Note this is residual maturity (cf. Art. 120(2) which uses the same residual-maturity test but Art. 121(3) which references the same residual ≤ 3m window).
3. Currency — exposure is denominated in the borrower's national currency (the currency of the jurisdiction in which the institution is incorporated).
4. Funding — exposure is also funded in that same national currency (i.e. the institution's funding leg matches the asset currency, ruling out off-shore-funded foreign-currency lending wrapped as domestic-currency claims).

Mechanism (RW derivation). Where the institution's central government benefits from preferential sovereign treatment under Art. 114(4) (UK central government and the Bank, sterling-denominated/funded → 0%), Art. 114(6) (Member-State central government domestic-currency exposure — onshored CRR text retains the Member-State gateway), or Art. 114(7) (third-country sovereign domestic-currency exposure where the Treasury determines equivalent supervision), a national-currency short-term exposure to an institution incorporated in that jurisdiction is assigned a risk weight one CQS category less favourable than the preferential sovereign RW, and is then floored at 20% by Art. 119(3).

The "one category less favourable" step uses the sovereign Art. 114(2) Table 1 ladder (0% / 20% / 50% / 100% / 100% / 150%):

UK worked example — sterling short-term claim on a UK institution.

Consider a 2-month £25m interbank placement with a UK-incorporated bank, sterling-denominated and sterling-funded:

1. Art. 119(2) eligibility check — counterparty = institution (yes); residual maturity = 2 months ≤ 3 months (yes); denomination = sterling (yes); funding = sterling (yes). All four conditions met.
2. Identify the sovereign preferential RW. UK central government / Bank of England, sterling-denominated and sterling-funded → 0% under Art. 114(4) (CRR p. 112).
3. Step one category less favourable on the Art. 114(2) Table 1 sovereign ladder: 0% (CQS 1) → 20% (CQS 2).
4. Apply the Art. 119(3) floor: 20% is exactly at the floor, so the floor binds without effect.
5. Final risk weight: 20%. RWA = £25m × 20% = £5m.

For the same exposure routed through Art. 120(2) Table 4 (rated CQS 2 institution, ≤ 3 months) the result is also 20%; routed through Art. 121(3) (if unrated, ≤ 3 months) it is again 20%. In the UK-domestic sterling-funded case the three paths converge — the Art. 119(2)/(3) channel becomes operationally meaningful only where the institution is incorporated in a third-country jurisdiction whose sovereign benefits from Art. 114(6)/(7) preferential treatment but whose own ECAI grade (Art. 120) or sovereign-derived grade (Art. 121) would otherwise produce a higher weight.

Scope. Applies to both rated and unrated institutions — unlike Art. 120(2) (ECAI required) and Art. 121(3) (unrated only), Art. 119(2)/(3) is an ECAI-agnostic path keyed on currency, funding, and residual maturity. Where both Art. 119(2) and Art. 120(2) could apply to the same rated exposure (e.g. a 2-month sterling-funded CQS 2 UK-bank exposure), the more favourable path prevails — in practice usually Art. 120(2) Table 4 (20% at CQS 1–3) matches or beats the Art. 119(3) floor (20%), so no operational difference for UK-domestic short-term claims.

Distinction from Art. 120(2) Table 4 and Art. 121(3). The three short-term preferential channels operate on different keys and must not be conflated:

Art. 120(2) and Art. 121(3) are general short-term windows; Art. 119(2)/(3) is a parallel, currency-conditioned, sovereign-derived path — the borrower picks the most favourable applicable grade across the three.

Corporate Exposures (CRR Art. 122)¶

Short-Term Assessments (CRR Art. 131, Table 7)¶

Where an exposure has a specific short-term ECAI assessment, Art. 131 provides a dedicated CQS mapping. This applies to short-term assessments on institutions and corporates.

Table 7 — Short-Term ECAI Assessment Risk Weights (Art. 131)

CIU Exposures (CRR Art. 132)¶

Retail Exposures (CRR Art. 123)¶

All qualifying retail exposures receive a flat 75% risk weight.

Payroll / Pension Loans (CRR Art. 123, CRR2)¶

Introduced by CRR2 (Regulation (EU) 2019/876, amendment F68), CRR Art. 123 second subparagraph assigns a 35% risk weight to loans granted to pensioners or employees with permanent contracts against unconditional transfer of salary or pension, subject to four conditions:

• (a) unconditional payroll/pension deduction authorisation to the credit institution;
• (b) insurance covering death, inability to work, unemployment, or salary/pension reduction;
• (c) aggregate loan payments ≤ 20% of net monthly salary/pension;
• (d) original maturity ≤ 10 years.

Basel 3.1 Retail Sub-Treatments (Art. 123)¶

Basel 3.1 restructures Art. 123 into numbered paragraphs and introduces new sub-categories. The payroll/pension 35% treatment is carried forward unchanged from CRR2 into Art. 123(4).

Covered Bond Exposures (CRR Art. 129)¶

Covered bonds backed by eligible collateral pools receive preferential risk weights:

CRR Covered Bond Risk Weights — Rated (Art. 129(4), Table 6A)¶

CRR Covered Bond Risk Weights — Unrated (Art. 129(5))¶

Unrated eligible covered bonds are assigned a risk weight derived from the issuing institution's senior unsecured risk weight. Under CRR, Art. 129(5) contains exactly four sub-paragraphs (a)–(d), enumerating the only institution RW inputs that can arise from the CRR Art. 120 / Art. 121 paths:

The institution RW is determined per Art. 120 (ECRA rated) or Art. 121 (sovereign-derived). If the issuing institution itself is unrated under CRR, the sovereign-derived approach (Art. 121, Table 5) provides the institution RW, which then maps through the table above.

Eligibility Conditions (Art. 129(1)–(3), (7))¶

Covered bonds must meet the following to qualify for preferential treatment:

• Issued by a credit institution with registered office in the UK or EEA
• Subject to special public supervision protecting bond holders (Art. 129(7))
• Backed by one of: (a) residential mortgage loans ≤ 80% LTV, (b) commercial mortgage loans ≤ 60% LTV, (c) exposures to central/regional governments ≤ CQS 1–2, (d) exposures to credit institutions ≤ CQS 1–2
• Bond holders have priority claim in the event of issuer default
• Collateral meets Art. 208 valuation requirements and Art. 229(1) valuation rules (Art. 129(3))

Pre-2007 Grandfathering (Art. 129(6))¶

CRR Art. 129(6) grandfathers covered bonds issued before 31 December 2007: they retain access to the preferential rated and unrated risk weights in Art. 129(4)/(5) without having to meet the eligible-collateral requirements of Art. 129(1) or the Art. 208 / Art. 229(1) valuation requirements of Art. 129(3). The grandfathering runs until the bond's contractual maturity — there is no sunset date and no re-eligibility test on amendment.

This is an eligibility carve-out only: the risk weights themselves come from the same Art. 129(4) Table 6A (rated) and Art. 129(5) derivation table (unrated) that apply to post-2007 bonds. A grandfathered CRR covered bond at CQS 2 still attracts 20%; a grandfathered unrated bond issued by a 50%-RW institution still attracts 20%.

Operational implication. Pre-2007 bonds in run-off are common in legacy UK covered bond programmes. Where the bond cannot be re-evidenced against modern Art. 129(1)(a)–(g) cover-pool eligibility — for example, because the cover pool includes asset types that pre-date the current eligible-asset list, or because LTV / valuation evidence to Art. 208 standards is unavailable — the firm should flag the issue date and rely on Art. 129(6) rather than re-classifying the bond out of the covered bond class. The Art. 129(7) portfolio-information / semi-annual disclosure conditions are not disapplied by para (6) and remain required for ongoing preferential treatment.

Basel 3.1 Covered Bond Changes (Art. 129)¶

PRA PS1/26 modifies Art. 129 in-place — there is no separate "Art. 129A".

Rated (Art. 129(4), Table 7): Identical to CRR Table 6A above — no changes.

New due diligence requirement (Art. 129(4A)): Institutions must conduct due diligence on external credit assessments. If the analysis reflects higher risk than the CQS implies, the institution must assign at least one CQS step higher than the external assessment.

Unrated (Art. 129(5)): The derivation table is expanded from 4 to 7 entries to accommodate the new institution risk weights introduced by ECRA and SCRA:

The new entries (aa), (ab), (ba) correspond to B31 institution risk weights that did not exist under CRR: 30% (ECRA CQS 2), 40% (SCRA Grade A), 75% (SCRA Grade B).

High-Risk Exposures (Art. 128)¶

Exposures associated with particularly high risk receive 150% risk weight. Assessment criteria per Art. 128(3): (a) high risk of loss from obligor default; (b) impossible to adequately assess whether (a) applies.

Examples of high-risk items include speculative immovable property financing and other exposures designated by the PRA. Under the Art. 112 Table A2 exposure class waterfall, equity (priority 3) takes precedence over high-risk items (priority 4) — venture capital and private equity exposures are classified as equity under Art. 133, not as high-risk items under Art. 128.

Residential Mortgage Exposures (CRR Art. 125)¶

Art. 125(2)(d) applies a proportion-based split — the 35% risk weight is assigned only to the part of the loan that does not exceed 80% of the market value (or 80% of the mortgage lending value, where rigorous MLV criteria apply in the United Kingdom). The remainder of the loan falls back to the counterparty's unsecured exposure risk weight under Art. 124(1) (e.g. 75% for a retail counterparty under Art. 123, or the applicable corporate / institution / SME weight where the borrower is non-retail).

Mechanism — proportion-based split (mirrors Art. 126 CRE). This is not an LTV-band table lookup: the regulation does not assign a single risk weight to the whole exposure based on which LTV band it falls into. Instead, the loan is partitioned into a secured portion (capped at 80% of property value) which receives 35%, and a residual portion which receives the counterparty's unsecured RW. Where the entire loan is within the secured portion (LTV ≤ 80%) the residual is zero and 35% applies to the whole exposure. The two cases below are therefore the same proportion-based mechanism — not two distinct bands.

Blended formula (general form):

secured_share = min(1.0, 0.80 / LTV)
avg_RW = 0.35 × secured_share + counterparty_unsecured_RW × (1.0 - secured_share)

For a retail mortgage borrower (counterparty unsecured RW = 75% per Art. 123), the formula reduces to:

avg_RW = 0.35 × (0.80 / LTV) + 0.75 × ((LTV - 0.80) / LTV)    (LTV > 0.80, retail counterparty)

Worked example — retail residential mortgage at 90% LTV. £200k loan secured on a property valued at £222.2k (LTV = 0.90). Apply the proportion- based split:

• Secured portion = 80% × £222.2k = £177.8k → 35% RW.
• Residual portion = £200k − £177.8k = £22.2k → 75% RW (Art. 123 retail unsecured).
• secured_share = 0.80 / 0.90 = 0.889.
• avg_RW = 0.35 × 0.889 + 0.75 × 0.111 = 0.311 + 0.0833 = 0.3944 → 39.4%.
• RWA = £200k × 39.4% = £78,889.

A naïve LTV-band reading ("90% LTV → 75%") would assign 75% to the whole £200k loan and produce £150k of RWA — almost twice the regulatory result.

Art. 125(2) qualifying conditions for the 35% secured portion:

• (a) Property value does not materially depend on borrower credit quality
• (b) Borrower risk does not materially depend on property/project performance — repayment capacity from other sources (i.e. not income-dependent)
• (c) Art. 208 requirements and Art. 229(1) valuation rules are met
• (d) The 35% risk weight applies only to the part of the loan not exceeding 80% of market value (or 80% of MLV where the UK rigorous-MLV criteria apply). The exposure must be fully and completely secured by mortgages on residential property which is or shall be occupied or let by the owner (Art. 125(1)(a))

Commercial Real Estate (CRR Art. 126)¶

Exposures secured by mortgages on commercial immovable property. Art. 126(2)(d) applies a proportion-based split analogous to Art. 125 for residential — the 50% risk weight applies only to the part of the loan that does not exceed 50% of market value (or 60% of mortgage lending value). The remainder falls to the counterparty's standard exposure class weight.

Art. 126(2) qualifying conditions for the 50% secured portion:

• (a) Property value does not materially depend on borrower credit quality
• (b) Borrower risk does not materially depend on property/project performance — repayment capacity from other sources (i.e. not income-dependent)
• (c) Art. 208 requirements and Art. 229(1) valuation rules are met
• (d) 50% RW assigned to the part of the loan not exceeding 50% of market value or 60% of MLV

Blended formula for LTV > 50%:

secured_share = min(1.0, 0.50 / LTV)
avg_RW = 0.50 × secured_share + counterparty_RW × (1.0 - secured_share)

LTV Definition for Basel 3.1 Real Estate (Art. 124C)¶

Basel 3.1 introduces a formal regulatory LTV definition in Art. 124C. The numerator includes outstanding balance + undrawn committed amounts + all prior/pari passu charges (Art. 124C(3)). CRM is excluded except pledged deposit accounts meeting on-balance-sheet netting requirements.

CRR comparison: CRR Art. 124(1)/125(1)/126(1) reference "the value of the property" and "the part of the loan" but do not have an explicit Art. 124C-style LTV definition with prior charge stacking requirements. The obligation to include senior charges in the LTV numerator is a Basel 3.1 addition.

Basel 3.1 Residential Real Estate (PRA PS1/26 Art. 124F-124G)¶

General Residential — Loan-Splitting (Art. 124F)¶

Not materially dependent on cash flows from the property (per Art. 124E exceptions). PRA adopted the loan-splitting approach (not the BCBS CRE20.73 whole-loan table):

• Secured portion (up to 55% of property value): 20% risk weight
• Residual portion (above 55% of property value): counterparty risk weight (Art. 124L)

secured_share = min(1.0, 0.55 / LTV)
RW = 0.20 × secured_share + counterparty_RW × (1.0 - secured_share)

Counterparty risk weight (Art. 124L):

Junior charges (Art. 124F(2)): If a prior or pari passu charge exists, the 55% threshold is reduced by the amount of the prior charge. The effective secured portion decreases, increasing the blended risk weight.

Income-Producing Residential — Whole-Loan (Art. 124G, Table 6B)¶

Materially dependent on cash flows from the property (e.g., buy-to-let). Whole-loan approach — single risk weight on entire exposure:

Junior charge multiplier (Art. 124G(2)): 1.25x applied to the whole-loan risk weight when LTV > 50% and prior/pari passu charges exist.

Commercial RE — General, Loan-Splitting (Art. 124H)¶

Not materially dependent on cash flows:

Natural person / SME: Split approach — 60% on portion up to 55% of property value, counterparty RW on remainder.

secured_share = min(1.0, 0.55 / LTV)
RW = 0.60 × secured_share + counterparty_RW × (1.0 - secured_share)

Other counterparties (Art. 124H(3)):

RW = max(60%, min(counterparty_RW, income_producing_RW))

Where income_producing_RW is the Art. 124I whole-loan weight for the same LTV band. This formula ensures the RW is at least 60% (the secured portion floor) but no more than the lower of the counterparty's unsecured RW or the income-producing table rate.

Commercial RE — Income-Producing (Art. 124I)¶

Materially dependent on cash flows:

Junior charge absolute override (Art. 124I(3)) — replaces Art. 124I(1)/(2) base, not a multiplier:

Other Real Estate (Art. 124J)¶

Non-regulatory real estate (doesn't meet Art. 124A qualifying criteria):

ADC Exposures (Art. 124K)¶

Basel 3.1 Corporate Exposures (PRA PS1/26 Art. 122(2) Table 6)¶

Additional Basel 3.1 Corporate Treatments¶

Basel 3.1 Institution Exposures (CRE20.16-21)¶

Rated institutions use ECRA (PRA PS1/26 Art. 120 Table 3). CQS 2 is reduced from CRR 50% to 30% under Basel 3.1 ECRA. Unrated institutions use SCRA:

ECRA (rated) takes precedence over SCRA (unrated). SCRA does not apply under CRR.

Equity Exposures (CRR Art. 133 / PRA PS1/26 Art. 133)¶

CRR Equity Risk Weights¶

Art. 133(2) assigns a flat 100% to all equity. Art. 133 has only 3 paragraphs — references to "Art. 133(3)" or "Art. 133(4)" with differentiated weights are erroneous (those values belong to Art. 155 IRB Simple).

Basel 3.1 Equity Risk Weights (PRA PS1/26 Art. 133)¶

Note: Basel 3.1 removes IRB equity approaches (Art. 147A). All equity uses SA risk weights. See Equity Approach for full details including CIU treatment and transitional schedule.

Defaulted Exposures (CRR Art. 127 / PRA PS1/26 Art. 127)¶

CRR Default Risk Weights¶

Basel 3.1 Default Risk Weights (PRA PS1/26 Art. 127)¶

Basel 3.1 SA Specialised Lending (Art. 122A-122B)¶

New Basel 3.1 SA exposure class with risk weights distinct from general corporates:

Rated specialised lending exposures use the corporate CQS table (Art. 122A(3)).

Other Items (CRR Art. 134 / PRA PS1/26 Art. 134)¶

Export Credit Agency Assessments (CRR Art. 137 / Table 9)¶

Where an Export Credit Agency (ECA) credit assessment is nominated under Art. 137(1) — either an OECD consensus risk score or a published assessment associated with one of the eight minimum export insurance premiums (MEIPs) — the exposure is assigned a risk weight directly from Art. 137(2) Table 9. Each MEIP score (0–7) maps directly to a risk weight; there is no intermediate CQS step.

Table 9 — MEIP risk weights (verbatim, Art. 137(2)):

This mapping is used for sovereign exposures (Art. 114) where an ECA assessment is recognised, and — via the institution-from-sovereign rules — for deriving institution risk weights where the sovereign itself is rated only by an ECA.

Art. 136 vs Art. 137 — two distinct mappings¶

CRR provides two routes by which an external assessment becomes a risk weight, and they must not be conflated:

• Art. 136 — ECAI mapping to CQS. The PRA, by technical standard, maps each nominated ECAI's credit assessments onto Credit Quality Steps 1–6. Articles 114, 120, 122, 129, 131 etc. then look the CQS up in their respective risk-weight tables ("a risk weight in accordance with Table N which corresponds to the credit assessment of the ECAI in accordance with Article 136" — verbatim from each of those articles). Where a counterparty is rated only by an Export Credit Agency that has been recognised as an ECAI, the ECA assessment flows through the Art. 136 CQS pipeline in the normal way.
• Art. 137 — direct MEIP-to-RW. Where an Export Credit Agency assessment is nominated under Art. 137(1) — i.e. an OECD consensus risk score or a published assessment associated with one of the eight Minimum Export Insurance Premiums — the risk weight is read directly from Table 9 above. There is no intermediate CQS step; MEIP score 0–7 maps straight to 0% / 0% / 20% / 50% / 100% / 100% / 100% / 150%.

The two routes are alternatives, not a chain: an institution chooses which nominated assessment applies to a given Art. 114 sovereign exposure and uses the corresponding table.

Basel 3.1 Changes Summary¶

• Due diligence obligation (Art. 110A): New prerequisite for all SA risk weight assignments — Done
• Residential RE loan-splitting (Art. 124F): 20% on ≤55% LTV, counterparty RW on residual — Done
• Residential RE income-producing (Art. 124G): Whole-loan LTV table (30%-105%) — Done
• Commercial RE loan-splitting (Art. 124H): 60% on ≤55% LTV, counterparty RW on residual — Done
• Commercial RE other counterparties (Art. 124H(3)): max/min formula — Done
• Commercial RE income-producing (Art. 124I): 100%/110% at ≤80%/>80% — Done
• Junior charge treatment (Art. 124F/G/I): RRE/RRE-income multipliers (125%/1.25×); CRE-income absolute 100%/125%/137.5% override (Art. 124I(3)) — Done
• Other Real Estate (Art. 124J): 150% income-dependent, counterparty RW otherwise — Done
• Revised corporate CQS mapping (Art. 122(2) Table 6): CQS 3 from 100% to 75% — Done. Note: PRA retains CQS 5 = 150% (BCBS CRE20.42 reduced to 100%, but PRA did not adopt this reduction)
• SCRA for unrated institutions (CRE20.18): Grade A/B/C risk weights replace flat 40% — Done
• SCRA enhanced Grade A (CRE20.19): 30% for CET1 ≥ 14% and leverage ratio ≥ 5% — Done
• SCRA short-term maturity (CRE20.20): Grade A/A_ENHANCED 20%, Grade B 50% for ≤3m exposures — Done
• Investment-grade corporates (Art. 122(6)(a)): 65% for unrated investment-grade (PRA permission required) — Done
• Non-investment-grade corporates (Art. 122(6)(b)): 135% for unrated non-IG (PRA permission required) — Done
• SME corporate (Art. 122(11)): 85% flat weight, replaces CRR 100% + supporting factor — Done
• Subordinated debt (CRE20.49): 150% flat, overrides all other treatments — Done
• Equity (Art. 133): 250% standard, 400% higher risk, 150% subordinated — Done
• Retail transactor/non-transactor (Art. 123): 45% QRRE transactors vs 75% non-transactors — Done
• Payroll/pension loans (CRR Art. 123, CRR2 / PRA PS1/26 Art. 123(4)): 35% — Done (Basel 3.1 only; CRR code gap)
• Non-regulatory retail (Art. 123(3)(c)): 100% — Done
• SA Specialised Lending (Art. 122A-122B): OF/CF=100%, PF pre-op=130%, PF op=100%, high-quality PF=80% — Done
• Default exposures (Art. 127): Provision-based 100%/150% with RESI RE always-100% exception — Done
• Other items (Art. 134): Cash=0%, gold=0%, collection=20%, tangible=100% — Done
• Covered bonds (Art. 129): CQS-based risk weights, eligibility criteria, unrated derivation, PRA deviation — Added
• Pre-2007 covered bond grandfathering (Art. 129(6)): CRR carve-out from Art. 129(1)/(3) eligibility tests retained until maturity; PRA PS1/26 Art. 129(6) retains the carve-out but additionally requires Art. 129(7) disclosure conditions — Added
• RGLA/PSE/MDB/Int'l Org tables (Art. 115-118): Missing from original spec — Added
• ECA / MEIP scores (Art. 137 Table 9): direct MEIP-score-to-risk-weight mapping (0–7 → 0%/0%/20%/50%/100%/100%/100%/150%) for sovereigns rated by an Export Credit Agency — Added
• Short-term assessments (Art. 131 Table 7): Short-term ECAI CQS mapping — Added
• CIU treatment (Art. 132/132a-132c): UK CRR omission noted, PRA Rulebook governs CIU — Added
• Unrated institution sovereign-derived (Art. 121 Table 5): Full sovereign-derived table — Added
• Removal of SME supporting factor: No longer applicable under Basel 3.1
• Removal of 1.06 scaling factor: Scaling factor set to 1.0 under Basel 3.1

Key Scenarios¶

Acceptance Tests¶

Real Estate Loan-Splitter (CRR Art. 125/126, PRA PS1/26 Art. 124F/H)¶

The RE-split pipeline stage (engine/stages/re_split/, registered as re_splitter in engine/registry.py, between the CRM and calculators stages) physically partitions property-collateralised SA-bound exposures whose exposure_class is not already RE-typed. The secured row is reclassified to RESIDENTIAL_MORTGAGE / COMMERCIAL_MORTGAGE and capped at the regulatory secured-LTV cap; the residual row keeps the original counterparty class so the standard corporate / retail risk weight applies on the remainder.

Eligibility & exclusions: Income-producing RE continues to use the existing whole-loan path (Art. 124G / Art. 124I bands). Defaulted, securitised, covered-bond, equity, CIU, subordinated and high-risk exposures are excluded from the split, as are exposures already classified as RESIDENTIAL_MORTGAGE / RETAIL_MORTGAGE / COMMERCIAL_MORTGAGE via the existing retail-mortgage branch.

CRR rental coverage (Art. 126(2)(d)): Optional collateral input rental_to_interest_ratio. When ≥ 1.5× the CRE split applies; when below (or absent) the exposure stays in its original class and an RE004 informational warning is emitted.

Mixed RRE+CRE collateral on a single exposure. When a single exposure carries both residential and commercial property collateral, the splitter materialises three child rows (secured_rre + secured_cre + residual) sharing one split_parent_id, with per-regime allocation:

• CRR Art. 124(1) "any part of an exposure" — RRE-first sequential. RRE consumes EAD up to its 80% LTV cap (Art. 125), then CRE picks up the remainder up to its 50% LTV cap (Art. 126, requires rental coverage). The CRR has no explicit "mixed RE" article, but the "any part of an exposure fully and completely secured by mortgages" wording in Art. 124(1) / 125(1)(a) / 126(1)(a) supports treating each preferential charge on its respective pledged portion. Allocating the lower-RW residential bucket first is bank-favourable and matches industry practice.
• PRA PS1/26 Art. 124(4) — pro-rata by collateral value (mandatory). rre_share = rre_v / (rre_v + cre_v); cre_share = 1 − rre_share. Each component's secured EAD is min(EAD × component_share, 0.55 × component_value − prior_charge_ltv × component_value). Single prior_charge_ltv applied to both caps as a v1 simplification (see B3.1 SA spec).

The child references are suffixed _rre / _cre / _res and the role is "secured_rre" / "secured_cre" / "residual". Single-component splits keep the legacy _sec suffix and "secured" role for backward compatibility.

A new RE003 informational warning is emitted with the per-batch count of mixed splits and the regime-specific allocation rule.

Audit & lineage: Both child rows share a split_parent_id equal to the parent exposure_reference; the child references are suffixed with _sec, _rre, _cre, or _res (or kept unchanged for the Art. 124H(3) whole-loan path). CRMAdjustedBundle.re_split_audit captures one row per parent (parent EAD, per-component secured EAD, residual EAD, per-component property values, effective cap, target class, is_mixed, regime). The sum of child EADs reconciles exactly to the parent EAD.