8.2.3.4 Ratings Downgrade
This assumption supports both rating based and notch based downgrade. These downgrades are specified for each legal entity within the bank’s organization structure. This can come from multiple sources such as Moody’s, S&P and can be both short term and long term or a combination thereof. Since these rating downgrades are defined at a legal entity level, legal entity is a mandatory dimension for this assumption. If the downgrade is same across all legal entities, no individual legal entity is required to be selected.
For some financing transactions or derivatives with embedded triggers for downgrade, a downgrade of the bank’s rating by a recognized credit rating institution requires the bank to post additional collateral. This will result in an increase in cash outflow for all the accounts that are triggered based on the corresponding downgrade impact amount and downgrade impact value specified by the bank. The downgrade trigger and the corresponding downgrade impact amount are available as part of the account information. For calculation of downgrade impact amount refer to the OFS Liquidity Risk Regulatory Calculations for US Federal Reserve User Guide Release 8.0.8.0.0 on OHC Documentation Library, Modified Liquidity Coverage Ratio Calculations, section Other Calculations.
Note:
The assumption specification and computation method for this sub category corresponds to that available as part of the Additional Collateral - Rating Downgrade Cash Flow Increase assumption type. This assumption is renamed as Ratings Downgrade in this version.See Defining a New Business Assumption, for information on the steps involved in specifying this assumption.
The steps involved in applying the delay in cash flow timing assumption to cash flows are as follows: