First- and second-to-default basket credFirst- and second-to-default basket credit derivatives

First- and second-to-default basket credit derivatives

1. An ADI which sells credit protection through a first-to-default or second-to-default credit derivative, must apply the following capital requirements to these exposures:
   1. for first-to-default credit derivatives, the risk weights of the assets included in the basket must be aggregated up to a maximum of 1250 per cent and multiplied by the nominal amount of the protection provided by the credit derivative to obtain the risk-weighted asset amount; and
   2. for second-to-default credit derivatives, the treatment is similar; however, in aggregating the risk weights, the asset with the lowest risk-weighted amount can be excluded from the calculation. This treatment applies respectively for nth-to-default credit derivatives, for which the n-assets with the lowest risk-weighted amounts can be excluded from the calculation.