16.A bank must meet all the requirements listed below to use any of the approaches specified in the Standard. If a bank does not perform the level of due diligence as described in this section, it must then assign a 1250% risk weight to any securitisation (or resecuritisation) exposure.

17.On an ongoing basis, the bank must have a comprehensive understanding of the risk characteristics of its individual securitisation exposures, whether on- or off-balance sheet, as well as the risk characteristics of the pools underlying its securitisation exposures. The extent of a bank’s due diligence should be appropriate to the nature and complexity of the bank’s securitisation related exposures. The bank should have in place effective internal policies, processes, and systems to ensure that the necessary due diligence activities are performed and should be able to demonstrate to the Central Bank that the due diligence analysis conducted is appropriate and effective.

18.Banks must be able to obtain performance information on the underlying pools on an ongoing basis in a timely manner. Such information may include, as appropriate: exposure type; percentage of loans 30, 60 and 90 days past due; default rates; prepayment rates; loans in foreclosure; property type; occupancy; average credit score or other measures of creditworthiness; average loan-to-value ratio; and industry and geographical diversification. For resecuritisations, banks should have information not only on the underlying securitisation tranches, such as the issuer name and credit quality, but also on the characteristics and performance of the pools underlying those securitisation tranches.

19.A bank must have a thorough understanding of all structural features of a securitisation transaction that would materially affect the performance of the bank’s exposures to the transaction, such as the contractual waterfall and waterfall-related triggers, credit enhancements, liquidity enhancements, market value triggers, and deal-specific definitions of default.