4. Positions subject to calculation of the IRC

Calculation of the IRC should include all long and short positions subject to a modelled charge for specific interest rate risk, with the exception of the items referred to at point 5 below.

In particular, the following positions should be included, if they are part of the trading book:

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• i. bonds issued by central governments (“sovereigns”), even in cases where the application of the standardised approach would result in a 0 % risk charge for specific interest rate risk;
• ii. structured bonds, credit linked notes or similar debt instruments if they do not embed exposures to securitisations or n-th-to-default credit derivatives;
• iii. money market loans.

Positions resulting from the application of the look-through approach to the shares of collective undertakings (CIUs), when such positions, if they directly belonged to the trading book, would be included in the calculation of the IRC according to point 4.1 above, should also be included. When the application of the look-through approach to the shares of CIUs is not possible, the standardised approach should be used.

The following positions are not considered securitisations and should therefore be included in the calculation of IRC, if they are part of the trading book:

• a. covered bonds (e.g. „Pfandbriefe‟) since such bonds are simply collateralised and not asset-backed;
• b. asset-backed securities that do not meet the definition of „securitisation position‟ in Article 3(1)(f) of Directive 2006/49/EC, which refers to Article 4(36) of Directive 2006/48/EC. For example where cash flows from the underlying pool are allocated to securities holders on a pro-rata basis and therefore have no tranching (e.g. pass-through MBS).

Positions in defaulted debt held in the trading book should, where material, be included in the calculation of the IRC. In this case, they may be excluded from the migration element of the IRC if, given the specific model framework of the institution, defaulted positions bear no migration risk (for example if default is modelled as an absorbing state). Where these positions are excluded for materiality reasons, an institution must be able to demonstrate that they are not material. In all cases, any material risk of price changes of defaulted debt, as driven by uncertain recovery marks, should be capitalised.

The definition of default in the case of paragraph 5 above, should be consistent with the definition of default in ratings used for modelling purposes.