Hierarchy & Classification Specification¶

Counterparty hierarchy resolution, rating inheritance, and exposure class determination.

Counterparty Hierarchy¶

Organisation Mappings¶

The calculator resolves parent-child relationships between counterparties using org_mappings:

• Child counterparties inherit ratings from their parent when they lack their own
• The hierarchy is traversed upward until a rated entity is found

Lending Group Aggregation¶

Lending groups aggregate exposure across related counterparties for threshold calculations (e.g., SME turnover, retail exposure limits).

• Members are defined via lending_mappings
• The parent counterparty is automatically included as a member
• Duplicate membership is resolved (a counterparty appearing in multiple groups keeps only the first assignment)
• Residential property exposures are excluded from retail aggregation per CRR Art. 123(c)

Facility-to-Exposure Mapping¶

The facility_mappings table links facilities to their underlying exposures (loans and contingents):

• Facility undrawn amount = max(facility_limit - sum(drawn_amounts) - sum(contingent_nominals), 0)
• Supports multiple exposure types under a single facility
• Pro-rata allocation of facility-level attributes

Multi-Level Facility Hierarchies¶

Facilities can form their own hierarchies (e.g., a master facility with sub-facilities beneath it). The resolver handles this via facility root lookup — an iterative traversal that mirrors the counterparty hierarchy pattern:

• Facility-to-facility edges are identified from facility_mappings where child_type = "facility"
• The hierarchy is traversed upward (up to 10 levels) to find the root facility for each sub-facility
• Output columns: child_facility_reference, root_facility_reference, facility_hierarchy_depth

Undrawn Amount Aggregation¶

For multi-level facility hierarchies, drawn amounts from loans under sub-facilities are aggregated up to the root facility:

Root Facility (limit = 1,000,000)
├── Sub-Facility A
│   ├── Loan 1 (drawn = 200,000)
│   └── Loan 2 (drawn = 100,000)
└── Sub-Facility B
    └── Loan 3 (drawn = 150,000)

Root undrawn = 1,000,000 - (200,000 + 100,000 + 150,000) = 550,000

Key rules:

• Root/standalone facilities produce undrawn exposure records
• Sub-facilities are excluded from producing their own undrawn records (avoids double-counting)
• Negative drawn amounts are clamped to zero before aggregation (negative balances do not increase headroom)
• Only facilities with undrawn_amount > 0 generate exposure records

Type Column Handling¶

The facility_mappings table may use different column names for the child type discriminator:

Exposure Classification¶

Entity Type to Exposure Class¶

Counterparty entity type determines the base SA exposure class:

Basel 3.1 Exposure Class Priority (Art. 112)¶

PRA PS1/26 Art. 112 defines 17 exposure classes with a strict priority ordering. When an exposure could belong to multiple classes, the highest-priority class takes precedence:

Calculator coverage: The calculator currently implements classes for: central govt/CB, RGLA, PSE, MDB, institution, corporate, specialised lending, retail, equity, real estate, ADC, and default. Securitisation, CIU (beyond 250% fallback), covered bonds, and high-risk items are tracked as future enhancements.

SME Detection¶

Corporate counterparties are reclassified as CORPORATE_SME when:

• Group turnover < EUR 50m (GBP converted to EUR at configured rate)

Retail Qualification¶

Individual counterparties qualify for retail treatment when:

• CRR: Aggregate exposure < EUR 1m (GBP ~873k at default EUR/GBP rate of 0.8732)
• Basel 3.1: Aggregate exposure < GBP 880k
• QRRE limit: Individual exposure ≤ EUR 100k (CRR, GBP ~87k at default rate) / GBP 100k (Basel 3.1)

If retail thresholds are breached, the exposure is reclassified as CORPORATE.

Defaulted Exposures¶

Exposures flagged with a default status are identified and tracked throughout the calculation. Defaulted status affects risk weighting (e.g., 150% SA risk weight for defaulted unsecured).

Approach Assignment¶

Dual-Approach Split¶

Based on IRB permissions in the configuration, exposures are routed to:

1. SA - Standardised Approach
2. IRB - Foundation IRB or Advanced IRB
3. Slotting - Specialised lending categories
4. Equity - Equity exposures (pass-through, no CRM applied)

FX Conversion¶

All monetary values are converted to the base currency (GBP) using provided FX rates before calculation.