Basel III International Banking Framework CRE34-35: Capitalise purchased receivables for default and dilution risk and compare expected loss with provisions

For purchased receivables the bank must apply the risk-weight function of the relevant asset class, using the most punitive function for hybrid pools it cannot split, and estimate PD and LGD on a stand-alone basis ignoring seller recourse (CRE34.1 to 34.3). Under the top-down foundation treatment, a pool EL that cannot be decomposed is run with a 40% LGD for exclusively senior corporate claims or 100% LGD otherwise, and revolving purchase facilities add 40% of undrawn commitments less the dilution charge (CRE34.4 to 34.6). Undrawn maturity absent protective covenants is the longest-dated receivable plus facility maturity (CRE34.7). Dilution risk must be capitalised unless shown immaterial, using PD equal to dilution EL and 100% LGD, with a one-year maturity only where dilution is resolved within one year (CRE34.8 to 34.9). Refundable purchase price discounts are treated under the securitisation chapters (CRE34.10). The bank must compute total EL as PD times LGD for non-defaulted exposures, best-estimate EL or supervisory LGD for defaulted ones and slotting EL, excluding securitisation exposures (CRE35.1 to 35.3). It must compare EL with total eligible provisions, allocate general provisions pro rata between standardised and IRB portfolios or by an approved internal method, and treat any excess or shortfall as set in the capital definition, with supervisory review before an excess counts as Tier 2 (CRE35.4 to 35.9).