Quantitative Impact Study 2

The Basel Committee on Banking Supervision's Quantitative Impact Study questionnaire is attached. The objective of the impact study is to assess whether the Committee has met its goals with regard to the New Basel Capital Accord. The impact study will gather the data necessary to allow the Committee to gauge the impact of the current proposals across a wide range of banks in the G10 and beyond, given the differing risk profiles of banks and the extent to which credit risk mitigation is used.

Banks are asked to provide the data to their national supervisor by 1 June, in an electronic format. The Committee recognises that the deadline for the questionnaire is short. However, this is essential if the New Accord is to be agreed this year as planned and it is hoped that banks' close co-operation with their supervisors in filling in the questionnaire will expedite the exercise. Supervisors will maintain an ongoing dialogue with participating banks throughout this process. They will also be asked to review banks' responses and discuss the data with banks on an ongoing basis to ensure that any difficulties are resolved prior to the 1 June deadline. This should help the Committee to have a thorough understanding of any limitations of data provided.

It is also recognised that banks will not have exact data to answer some of the questions or might not be able to calculate the requirements. Estimates, therefore, are acceptable as long as they are well founded and agreed with national supervisors.

The Committee appreciates that the exercise is lengthy and very detailed and recognises that it will be a burden on participating institutions. However, we believe that it is in the interests of the industry that the Committee's proposals have a strong quantitative basis. The requested information is critical to an accurate assessment of the overall impact of the revised Accord and to the calibration of its components (so reducing the need for any buffer against uncertainty). Your co-operation and participation is, therefore, of considerable significance and your supervisor will be happy to discuss the exercise with you should this be necessary or to resolve any queries that you might have.

All data supplied will be treated as confidential. The Committee does wish, however, to provide some feedback for the industry on the overall results. This will be done on a basis that avoids any disclosure of individual bank balance sheet data.

Questionnaire

The Committee is asking that the capital requirements for credit risk be calculated using both the standardised and IRB foundation approaches for a convenient date either in 2000 or the first quarter of 2001. The questionnaire is divided into three sections:

1. Chapter 1 (Parts I through VIII) requests general information on the nature of the bank (size, current capital, credit rating etc.). In addition, it asks for the capital requirements for credit risk under the standardised and IRB foundation approaches to be calculated for a bank's whole portfolio - at least 80% of group-wide exposures should be included - as well as the impact of credit risk mitigation. All banks are asked to calculate capital requirements for credit risk under the standardised and IRB approaches if they can. This section also asks for operational risk data and consists of questions pertaining to the Basic Indicator and the Standardised approaches to operational risk.
2. The second section requests details of the standardised approach for credit risk. Those banks only able to provide information on the standardised approach should complete this section.
3. The third section requests details of the IRB approach This should be completed by banks which expect to request permission to apply the IRB approach under the New Accord and which have information on loans by grades, and can estimate the probability of default associated with such grades.

The questionnaire is provided in Microsoft Excel format. As the objective of this study rests on being able to analyse cross-sections of standard data, the worksheet protection feature has been enabled. You are asked to provide data precisely in the form in which it is asked. If banks have further comments they wish to make they should provide these on additional sheets or should discuss the matter further with their national supervisor.

Capital calculations

It is essential that, when performing these calculations, the bank compare the proposed and current capital requirements using the same portfolio. Banks which can calculate capital requirements for a wider selection of exposures under the standardised than the IRB approach should, as a comparator, calculate the standardised approach only for the narrower book used for the IRB. This is to ensure that the percentage changes in capital required by the different methods (standardised requirements versus current requirements, IRB foundation requirements versus current requirements etc.) are meaningful and comparable. Similarly, for banks calculating the requirements under the advanced approach for only part of the portfolio, the IRB and standardised approach should also be calculated only for this part of the portfolio. It would be helpful if all banks with own loss given default (LGD) information could try to calculate the advanced approach on at least part of their book, even if maturity information is not av ailable and therefore that dimension cannot be included.

Scope

Large international banks are being asked to ensure that at least 80% (by value) of their group-wide exposures are included in the data for capital calculations. This is necessary to ensure that the data supplied is broadly representative of the banks' portfolios and to give an accurate impression of the impact. At the level of operating entities some banks concentrate particular types of exposure in one entity, making that entity unrepresentative of the whole group. It is understood that it will not be possible to include the exposures in every entity within a group, but the main operating entities should be included. Any intra-group transactions should be excluded when calculating the group-wide figures. The Committee appreciates that it may also be necessary to estimate some elements of the data necessary to calculate the capital requirements for the IRB approach. This is satisfactory as long as the estimates are representative of the wider picture in the group.

Given the wide variety of results likely, the Committee also needs to consider the typical profiles of book across the G10 and the impact that the Accord has on banks with these types of portfolio. This is why the Committee is asking for information on the quality distributions of the credit books and also the split between corporate, interbank, sovereign and retail exposures and the split between commitments and drawn facilities. All this information will be essential to assess the New Accord's impact.

Internal Ratings

In terms of the IRB, one of the main determinants of the overall effect is the split in the corporate, sovereign and interbank exposures between three broad risk categories of internal loan grades as defined by their associated probabilities of default:

• PD < 0.2%
• 0.2% ≤ PD < 0.8%
• 0.8% ≤ PD.

Therefore, at a minimum the Committee requires information on this broad quality distribution. The Committee is asking also for a breakdown by the finer loan gradings and default probabilities used by the bank, which is an important input into the exercise. It is recognised however, that it may be possible to do this for only certain portfolios and that the most extensive allocation might simply be into the three broad bands above. Of course, even if the detailed quality distributions are not available at an aggregate level, banks should use whatever finer distributions they have in calculating capital requirements under the IRB approaches.

Another area of interest to the Committee is the extent to which the distribution of exposures across rating bands changes over time, in particular across the cycle. If possible, some indication of how the distribution has changed would be very helpful. It will also be necessary to know whether internal grades, when set, are "point in time" (i.e. assuming that the financials for the borrower remain as they are currently) or whether they are "through the cycle" (i.e. taking into account possible stresses in different economic conditions). If a bank uses an approach that is rather different from either of these, they should point this out to their supervisor.

Default

The definition of default used is clearly important here and, if possible, banks should use the definition set out in paragraph 146 of the supporting document for the IRB approach (i.e. banks should monitor all four of the different criteria and recognise default as soon as one of the four is fulfilled). The Committee recognises that some banks may not be able to do this at this juncture and therefore we are asking that banks state the definition or definitions used for different portfolios. Again, supervisors will be speaking with banks to gain an understanding of how the quality distributions might have differed if the definition of default would have been different.

Credit Risk Mitigation

The Committee is also requesting information on the extent to which exposures are collateralised and the consequent loss given default. Collateralisation is also an important determinant of the final capital figure. It is essential to try to take the overall effect of collateralisation into account in the calculation of capital, which is required under the standardised and IRB approaches. Likewise, information on a bank's estimates of loss given default for such collateral would be helpful.

Even if it is difficult to obtain precise data on the extent to which exposures are backed by the new forms of collateral/credit risk mitigation which will be allowable under the New Accord, it would be helpful to have estimates of this and also of the extent to which other forms of collateral have been taken. One possible method of generating these estimates might be for banks to conduct a random sample of their loan documentation to look at the extent of collateralisation by collateral type and facility. This could be done for both financial and physical collateral. Banks should discuss with their supervisors how this might be undertaken to produce reliable data for the Committee. However, if a bank is unable either to estimate or provide accurate information, it should leave these tables uncompleted.

Operational Risk

The Committee has outlined proposals for the development of a capital charge to cover operational risks. It has set out 3 approaches to operational risk of increasing sophistication - the Basic Indicator Approach, the Standardised Approach and the Internal Measurement Approach. Information is requested to allow an estimation of the impact of the charge using the Basic Indicator Approach and on indicators to inform the further development of the Standardised and Internal Measurement Approaches. This should be submitted along with the rest of the QIS information by 1 June 2001. A further data request for operational loss data will be made to obtain information to allow an accurate calibration of all three techniques for assessing the operational risk charge; the deadline for submission of this data is likely to be during August.

Definitions

More generally, there are areas where banks and supervisors will need to consider together the definitions that are used for business lines (e.g. retail, project-finance etc). Wherever possible, banks should use definitions that are given in the consultation paper - part 1 of the questionnaire lists the most important of these. However, the Committee recognises that current systems may mean that, in the time available, banks will have to meet the definitions on a "best efforts" basis. In general, banks should classify exposures (e.g. categories such as project finance or retail) according to the risk characteristics of a type of business - a case of "knowing it when you see it". For example, for retail, it is important to capture certain characteristics (large number of low value exposures, with a lower unexpected loss relative to expected loss etc).

The following issues have been raised by supervisors and banks since the distribution of the Basel Committee's Quantitative Impact Study. These FAQ are intended to facilitate the completion of QIS survey and should not be construed as an official interpretation of the January 2001 Consultative Document.

General Instructions and Miscellaneous Issues

1. Will there be any kind of feedback for banks participating in the study?

Response: Yes - the Basel Committee will provide public feedback once all QIS information has been received and analysed and the Committee has had an opportunity to review the conclusions. The timing of such feedback would likely be October or November 2001.

2. The cover note and instructions are unclear regarding which part of the questionnaire is compulsory or voluntary. Should banks that do not intend to implement an internal ratings based (IRB) approach answer only the standardised approach section? Should potential IRB banks attempt to answer both the standardised and IRB sections?

Response: Banks expecting to apply to use an IRB approach should complete as much of the IRB portion of the survey as possible. In addition and on a best-efforts basis, these banks should also complete the standardised approach portion. In speaking with banks and trade associations, it is our understanding that many of the large banks have already initiated this type of exercise (i.e. comparing standardised approach requirements with IRB requirements). Banks planning on using the standardised approach should only complete that portion of the survey.

3. The introduction of the survey (Part I. Section I. 3.2) notes that guidance is available from supervisors concerning the mapping of Moody's and Fitch IBCA ratings into risk buckets. How can this guidance be obtained?

Response: The Basel Committee has prepared a paper - QIS Ratings Comparison - that should assist banks in mapping ratings from Moody's and Fitch IBCA to the standardised risk weighting scheme as proposed in the January 2001 New Basel Capital Accord (the "Rules Paper"). That proposal associated different risk buckets with ratings from Standard & Poor's. The QIS Ratings Comparison provides the comparable ratings for Moody's and Fitch IBCA with Standard & Poor's.

4. Why are OTC derivatives emphasized in the section of the survey's introduction (item I. 4.1) that discusses definitions of credit risk? Should not exposures to traded options/financial futures (i.e. listed products) be considered or should they be risk-weighted at 0%? Should exposures to Traded Options and Financial Futures (TOFF) Exchanges be treated as banks or are TOFF Exchanges not considered as counterparties?

Response: OTC derivatives are specifically indicated because of their potentially significant impact. However, all items that carry counterparty risk in the trading book (except for specific risk on securities positions, which has a different treatment under the current Basel Accord) should be included.

With respect to the treatment of exposures to instruments traded on TOFF and other exchanges, the 1988 Basel Accord provides that such instruments (swaps, options, futures, etc.) traded on exchanges may be excluded from the capital calculation if they are subject to daily margining requirements. For purposes of the QIS exercise, such instruments should similarly be excluded.

Default Issues - General Guidance

Part VI: Capital Requirements

Capital calculations in this part should be done on the basis of the Rules Paper. Further guidance, however, is useful regarding defaulted assets. Under Part VI, banks should include defaulted loans at book value, i.e. net of any specific provisions or partial charge-offs already taken by the bank. When completing the IRB sections (for both foundation and advanced approaches), banks should calculate the capital requirement associated with defaulted assets by applying a PD of 100 percent and an LGD of 50 percent to the book value of those loans. (In analysing the data, the Basel Committee will adjust the calculations to reflect any specific provisions based on information included in Part VIII: Defaulted Loans).

Part VIII: Defaulted Loans

This Part is used to collect information regarding the amount of specific reserves or partial charge-offs already taken, which could be applied in meeting the bank's capital requirements on defaulted loans. It would also provide information on defaulted loans included in the portfolios used for calculating capital requirements under the current and standardised approaches. Institutions should, therefore, ensure that the defaulted loan amounts and associated specific provisions included in Part VIII are consistent with the portfolios reported in Part VI. To provide the Committee with such information, banks should complete this Part VIII in the following way:

1. To begin, number the columns 1-8 from left to right, with the last column (the derived specific provision figure) being column 8.
2. All banks should complete columns 6-7 for each approach (current portfolio, standardised, and the foundation and advanced IRB). Columns 6 and 7 should provide the amount of defaulted loans net of specific provisions (col. 6) and gross of such provisions (col. 7). That is, column 7 should reflect the bank's total claim on the defaulting party, pursuant to the transaction.
3. Banks should complete columns 3 and 4 ONLY for the advanced approach. Information from those columns for other approaches is not needed and may be left blank. Column 3 should provide total assets gross of specific provisions on defaulted loans. Column 4 should show the required capital calculation for the entire portfolio, with the calculations for defaulted assets based on the gross amount, applying a PD of 100% and using the bank's own estimates of LGD. (In analysing the data, the Basel Committee will adjust the calculations to reflect any specific provisions based on information included in columns 6 and 7). Banks that are unable to reflect their own estimates of LGD for defaulted assets (e.g. because the data are not readily available for this survey) may leave these columns blank.
4. As further clarification, Part VIII 1.1, which requests the amount of defaulted loans included in the 150 percent bucket of the standardised approach, should include ONLY those balances which are unsecured. (This item, therefore, should reflect paragraph 39 of the Rules Paper.)

Part V: Assumptions Used by Banks

5. In Section V 2.1, banks are asked whether they have used the foundation treatment for guarantees or the substitution ceiling treatment. Would you please clarify this question?

Response: This question is intended to draw a distinction between the two approaches for treating guarantees that are available under the IRB approach. Paragraph 181 of the Rules Paper notes that there are two approaches for the recognition of guarantees in the IRB approach: a foundation approach, which closely follows the approach used under the standardised approach, and the "substitution ceiling" approach. The latter, an advanced approach, can be used by banks that meet specific minimum requirements (see also paragraphs 403 to 421 of the Rules Paper).

Part VI: Capital Requirements

6. The Part I definitions and the Part VI tables on capital requirements define credit risk as arising from both banking and trading books. In Table VI 1.1, do the capital requirements under the current Accord and under the new standardised approach include those on the trading book (i.e. credit risk is appraised throughout all portfolios)?

Response: For purposes of this study, capital requirements for credit risk should be calculated with regard to credit/counterparty exposures (net of specific provisions and write-offs). They should include exposures that arise in both the banking and the trading book (but excluding specific risk in the trading book), and taking full account of allowable credit risk mitigation.

7. In Table VI 1.1 (Capital requirements for credit risk under different approaches), should banks include the notional balances of all (OTC and exchange-traded) derivative off-balance-sheet products in the column "Other off-balance Sheet Items"?

Response: The first three columns of Table VI 1.1 (i.e. amounts outstanding "before conversion") should include:

• Column 1: gross drawn exposures
• Column 2: gross commitments (i.e. 100% of the committed amount). This should not include unconditionally cancellable commitments.
• Column 3: other off-balance sheet exposures.

For all off-balance sheet derivatives for which a capital charge is required under the existing Basel Accord rules, the mark-to-market value of these derivative exposures should be included in either column 1 or column 3. The bank must note the column into which these exposures have been placed. Potential future exposures must go in column 3 (off-balance sheet items). Note that for purposes of this study, the foregoing would apply only to OTC derivatives as counterparty risk on exchange traded derivatives is generally zero under existing rules.

8. In Table VI 1.1, Part A (Current portfolio) and Part B (Standardised Approach) ask for information pertaining to "Project Finance". Why are banks asked to provide this data given that neither the current nor the future new standardised approach deals with "Project Finance" as a separate portfolio. How should banks deal with this question?

Response: For purposes of this study, when calculating capital requirements under the standardised approach (current or proposed) columns, exposures meeting the IRB project-finance definition (see Introduction I. 4.7) should be separately identified in this row. These exposures should then be risk weighted according to the applicable standardised approach risk weight. When calculating IRB capital requirements, this row should similarly include all exposures meeting the above-mentioned project-finance definition; these exposures should then be risk weighted using the IRB corporate risk weights.

9. What should banks include when asked to provide information on "Securitised assets"? Should they report asset-backed securities (ABS) in which they have invested or assets that they have securitised? How should banks calculate the capital requirement under an IRB approach for securitised assets?

Response: In Column 1 and Column 3 of Table VI 1.1 (i.e. amounts outstanding "before conversion"), information on securitised assets should include:

• Column 1: investments in third party securitised assets and investments in a bank's own securitised assets and subsequently repurchased.
• Column 3: 10% of the notional amount of a pool of securitised revolving credits that contain early amortisation features. (See paragraphs 520-523 of the Rules for further information).

With respect to securitisations under an IRB approach, an explicit proposal for the treatment of securitised assets was not available at the time the Consultative Document was published in January 2001. For purposes of the QIS survey, banks should use their calculations of capital requirements for securitised assets under the standardised approach for both the IRB foundation and advanced calculations. That is, banks should reflect the same figures for securitised assets lines in parts B, C and D of Table VI 1.1.

10. In Table VI 1.2. (Capital requirements for credit risk considering effects of CRM and maturity adjustment), for advanced IRB, should banks calculate the requirements by either one or both of the two maturity adjustments (i.e. mark-to-market - MTM or one-period default mode - DM)? Under foundation IRB, is it necessary to ask for data based on MTM or DM?

Response: When completing the survey, banks should calculate advanced IRB capital requirements under both maturity adjustments (if possible). Supervisors should indicate which of the approaches were used or whether both approaches were used. For banks providing data under the foundation approach, banks should use the assumption of a standard maturity of three years.

11. Also in Table VI 1.2, is it necessary to ask for data before CRM and after CRM for advanced IRB calculations?

Response: Yes - for banks providing data under the advanced approach, they should provide data before and after the effects of CRM. This should be provided in a separate annex to the questionnaire.

12. In Table VI 1.2 (Capital requirements for credit risk considering effects of CRM and maturity adjustments), under the advanced approach how should maturity be computed for credit lines without pre-determined maturity, i.e. the bank may cancel them at any time?

Response: This issue is related not only to this table but to the maturity of all exposures derived from undrawn commitments under the advanced IRB approach. Under the standardised and the foundation IRB approaches, an unconditionally cancellable credit line has a credit conversion factor (CCF) of zero. Therefore, there is no exposure and no maturity issue (see also paragraphs 40-44, 230-233 of the Rules Paper). Under the advanced IRB approach, a bank may use its own internal CCF. Based on the bank's internal estimates, unconditionally cancellable commitments are then converted into on-balance sheet equivalents and the corresponding maturity will be equal to the maturity of the drawn portion of the credit line.

13. With regard to undrawn commitments (Section VI-4, Capital requirements for undrawn commitments and other off-balance sheet items), should banks complete the table before or after CRM?

Response: The figures required in this table are capital requirements, not the amount of undrawn commitments and other off-balance sheet items. These capital requirements should be calculated after CRM and after credit conversion. For reference, see I. 2.9 of the Instructions.

14. Should banks include real estate (e.g. own premises) and other assets when calculating capital requirements? If so, where should these exposures be included?

Response: Section VI seeks to identify the capital associated with a bank's credit and counterparty risk and to allow for a meaningful comparison between capital requirements under existing capital guidelines and those proposed in the January Consultative Document. As such and for purposes of this exercise, banks should not ordinarily need to include real estate and other assets when calculating capital requirements for this section of the QIS survey. An exception would be when a bank's real estate and/or other assets and associated capital requirements represent a material portion of total assets ("material" as defined by the bank's supervisor). In such cases, these holdings and associated capital should be reported separately and in consultation with the national supervisor.

Part VII: Operational Risk

15. What do we mean by "economic capital"?

Response: Economic capital is the capital that a bank holds and allocates internally as a result of its own assessment of risk. It differs from regulatory capital, which is determined by supervisors on the basis of the Basel Accord.

16. In Table VII 1.1. (Capital Requirements, Economic Capital and Gross Income), does economic capital relate to only operational risk or for all risks?

Response: The requested figure is the bank's TOTAL economic capital - not just the economic capital allocated for operational risks (this information is captured in Section VII 3). The purpose of this question is to compare Total Economic Capital for all of the bank's risks with Regulatory Capital (the question that immediately precedes the economic capital question).

Part IX: Quality distributions and Risk-weighted Assets

17. Should banks complete Table XIV (Distribution into Maturity Bands) before or after CRM?

Response: The concept of maturity that should be used to complete Table XIV is EFFECTIVE MATURITY (for a bank under advanced IRB the concept is defined in paragraphs 225-228 of the Rules Paper). Credit risk mitigation should not have any impact on maturity and the table should be completed BEFORE CRM.

Part XI : Distributions for Corporate, Sovereign, and Bank Exposures

18. In the tables included in Part XI (Section XI-1: Summary tables of quality distributions and Section XI-2: Bank's own quality distributions), should we also give instruction to banks on how to treat defaulted assets to avoid inconsistent data reporting?

Response: Banks should exclude defaulted loans from all IRB quality distributions. Table XI. 1. Contains a column titled "Not Allocated to a grade", which is defined as loans, other than defaulted loans, that have not been allocated to PD bands and therefore not shown in any of the PD columns contained in that table.

19. In Section XI-3 (Granularity), we are not sure why only the granularity scaling factor (GSF) and the granularity adjustment are requested, since GSF will have less implication for analysis without n*. For instance, both GSF and n* are needed for calibration and analysis on granularity adjustment function.

Response: As the granularity equation has three elements (GSF, n* and the granularity adjustment), having two elements allows one to derive the third. As n* may comprise a number of different inputs (i.e. effective number of loans for each portfolio), GSF and the granularity adjustment were requested for ease in completing the survey. However, it should be noted that to help inform the Committee and the group working on the granularity issue, it would be helpful if banks were to share with their supervisor the calculation used for granularity.

20. The formula for the granularity adjustment cannot be applied to those exposures that have a PD equal to zero (0), such as sovereigns and central banks. Should exposures with a PD=0 be left out from the granularity adjustment?

Response: No - exposures with a PD=0 MUST be included in the Granularity Adjustment (GA). This is an area of common confusion, but one that is important to correct because it reflects misunderstanding of the way that the GA is calculated. When a bucket's PD=0, then F=0 for that bucket as well. The formula for the Granularity Scaling Factor (GSF) requires that we calculate (PD / F) for the "aggregated" PD and "aggregated" F. The entire non-retail portfolio can never have a PD=0. As long as some bucket in the total non-retail portfolio has PD>0, then the aggregate PD and aggregate F will be strictly positive.

The confusion stems from the mistaken idea that the GA is applied to the sovereign portfolio, commercial portfolio, etc, on an individual portfolio basis. It is important to emphasise that the GA is applied to the non-retail portfolio in its entirety.

21. In Section XI-2 (Bank´s own quality distributions), this table, as currently constructed, allows a bank to provide information on only 3 PD grades. Does this mean that only the 3 given grades should be filled in?

Response: The dotted lines to the right of the three boxes were meant to signify that there are likely additional boxes required to accommodate the number of grades used by banks. Due to the variance in the number of grades used by banks, it would be difficult to capture this information in a standard table in the survey. Therefore, banks are asked to attach a separate table outlining the different grades they use, the associated PD for each grade, and the amount of each loan category (in millions of euros) that have been assigned to those grades.

It is worth highlighting that the preceding tables in Section XI-1 (Summary tables of quality distributions) are a more concise compilation of the information requested in Section XI-2. These summary tables seek to group a bank's quality distributions into four broad categories:

and exposures not allocated to a grade. At a minimum, the Committee requires information on these broad groupings and, if possible, banks should provide the more detailed information in Section XI-2.

Part X: Credit Risk Mitigation - Standardised Approach and Part XVI: Credit Risk Mitigation - Foundation IRB Approach

22. I have been contacted by a bank requesting guidance on the treatment of a "Joint and several guarantee". A Joint and several guarantee is a guarantee which is typically given by the parent company to its foreign subsidiary, indicating that the parent company will cover all liabilities of this subsidiary. According to the current wording of the New Capital Accord, such a guarantee would not be eligible for a capital relief, since it does not meet the requirement set out in paragraph 122 of the "Rules Paper", which says, that a guarantee must be linked to a specific exposure. The question is, therefore, was it the intention to exclude this kind of guarantee when formulating the requirements? Additionally, for the QIS, banks should know how to treat this kind of guarantee.

Response: The Basel Committee has not yet formally discussed this specific issue but it expects to consider it in due course. For the purposes of this study, banks should exclude joint and several guarantees when formulating capital requirements.

23. Should only exposures in the banking book be reported in the standardised approach CRM table (Part X) and the IRB CRM table (Part XVI)?

Response: Yes - Table X clearly asks for information pertaining to the banking book while Table XVI does not. As a matter of consistency, therefore, banks should report information on exposures in the banking book in both Table X and Table XVI.

24. Should loan syndications be included in the CRM tables (i.e. Parts X and XVI)?

Response: Yes - if the bank considers syndicated loans as corporate exposures, it should include them in the CRM tables.

25. Under the standardised and the IRB approaches, what should "w" be when a guarantor is a public sector entity (PSE)?

Response: The Consultative Package text does not provide clear guidance when comparing the treatment of guarantors under the various approaches. For instance, under the standardised approach, exposures to PSEs are generally treated either as sovereigns or as banks, which implies a "w" equal to zero if a PSE is a guarantor. In the IRB approach, exposures on PSEs are treated either as sovereigns or as corporates, in which case "w" would be equal to zero or 0.15. (This anomaly had already been detected and it will be addressed in the final version of the New Capital Accord). For the purpose of the QIS exercise, the guidelines should be followed as written. That is, under the standardised approach, the "w" for a PSE-guarantor should be zero, while under the IRB approach, a PSE-guarantor would attract a "w" of either zero or 0.15.

Parts XII and XIII: Quality Distributions for Project Finance and Retail Portfolios

26. Are the undrawn portions of retail and project finance exposures included in the questionnaire? In the retail and project finance tables, the undrawn credit lines are not included in the tables.

Response: Please see Part V (Assumptions used by banks), question 1.6. "In the case of retail exposures, explain if the bank considers the undrawn but committed portion of exposures in calculating the estimates for EAD or in calculating the estimates for LGD/EL". Under the retail treatment set forth in the New Accord, conversion factors need not be applied to uncommitted lines, or for facilities that are unconditionally cancellable (see paragraph 276 of the IRB supporting document). However, undrawn portions are an indirect input when a bank has to estimate its EL or PD/LGD.

Part XIV: Distribution of Portfolio into Maturity Bands

27. What is the basis of disclosure in this table? Are face value/notional principal amounts required or the risk weighted amount/credit equivalent amount for market related contracts?

Response: The exposures to be included in this table should use similar definitions as the first three columns of Table VI 1.1 (amounts outstanding "before conversion"), split according to the various maturity buckets. That is, they should include:

• Column 1: gross drawn exposures
• Column 2: gross commitments (i.e. 100% of the committed amount). This should not include unconditionally cancellable commitments.
• Column 3: off balance sheet exposures.

28. How should a bank report the maturity of a swap when netting long- and short-dated swaps with one counterparty?

Response: Banks should allocate the net exposure to the largest maturity.

Part XV: Estimates of LGD and EAD

29. Should derivatives be included or excluded from the requested information?

Response: Banks should exclude all potential future exposures on derivatives when providing information on their own estimates of EAD for the corporate book.