RWA Calculator Specifications¶

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

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

Specification Index¶

CRR Framework (Current - Until December 2026)¶

Basel 3.1 Framework (From January 2027)¶

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

Common (Framework-Agnostic)¶

Project¶

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 (including UK 30% CQS 2 deviation)
• 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:

• Financial collateral haircuts (CRR Art. 224)
• FX mismatch haircut (8%)
• Overcollateralisation requirements (CRR Art. 230)
• Guarantee substitution (CRR Art. 213-217)
• Multi-level collateral allocation (exposure, facility, counterparty)
• Maturity mismatch adjustment (CRR Art. 238)

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

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 (guarantee-driven IRB→SA CCF/RW substitution)
• B31-F: Output floor phase-in (50%–72.5%, 2027–2032)

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 (2027–2032)

Scenario ID Convention¶

Each scenario is tagged with an identifier for traceability:

For Developers¶

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