Sub-Section 1 Funded credit protection

1. Overview

Article 218 Credit linked notes

Article 218

Credit linked notes

Investments in credit linked notes issued by the lending institution may be treated as cash collateral for the purpose of calculating the effect of funded credit protection in accordance with this Sub-section, provided that the credit default swap embedded in the credit linked note qualifies as eligible unfunded credit protection. For the purpose of determining whether the credit default swap embedded in a credit linked note qualifies as eligible unfunded credit protection, the institution may consider the condition in point (c) of Article 194(6) to be met.

Article 219 On-balance-sheet netting

Article 219

On-balance-sheet netting

Loans to and deposits with the lending institution subject to on-balance-sheet netting shall be treated by that institution as cash collateral for the purpose of calculating the effect of funded credit protection for those loans and deposits of the lending institution subject to on-balance-sheet netting.

Article 220 Using the Supervisory Volatility Adjustments Approach for master netting agreements

Article 221 Using the internal models approach for master netting agreements

Article 222 Financial Collateral Simple Method

Article 223 Financial Collateral Comprehensive Method

Article 224 Supervisory volatility adjustment under the Financial Collateral Comprehensive Method

Article 226 Scaling up of volatility adjustment under the Financial Collateral Comprehensive Method

Article 226

Scaling up of volatility adjustment under the Financial Collateral Comprehensive Method

The volatility adjustments set out in Article 224 are the volatility adjustments an institution shall apply where there is daily revaluation. Where the frequency of revaluation is less than daily, institutions shall apply larger volatility adjustments. Institutions shall calculate them by scaling up the daily revaluation volatility adjustments, using the following square-root-of-time formula:

where:

H	= the volatility adjustment to be applied;

HM	= the voatility adjustment where there is daily revaluation;

NR	= the actual number of business days between revaluations;

TM	= the liquidation period for the type of transaction in question.

Article 227 Conditions for applying a 0 % volatility adjustment under the Financial Collateral Comprehensive Method

Article 228 Calculating risk-weighted exposure amounts under the Financial Collateral Comprehensive method for exposures treated under the Standardised Approach

Article 228

Calculating risk-weighted exposure amounts under the Financial Collateral Comprehensive method for exposures treated under the Standardised Approach

Under the Standardised Approach, institutions shall use E* as calculated under Article 223(5) as the exposure value for the purposes of Article 113. In the case of off-balance-sheet items listed in Annex I, institutions shall use E* as the value to which the percentages indicated in Article 111(2) shall be applied to arrive at the exposure value.

Article 229 Valuation principles for eligible collateral other than financial collateral

Article 230 Calculating risk-weighted exposure amounts and expected loss amounts for an exposure with an eligible funded credit protection under the IRB Approach

Article 231 Calculating risk-weighted exposure amounts and expected loss amounts in the case of pools of eligible funded credit protection for an exposure treated under the IRB Approach

Article 231

Calculating risk-weighted exposure amounts and expected loss amounts in the case of pools of eligible funded credit protection for an exposure treated under the IRB Approach

Institutions that have obtained multiple types of funded credit protection may, for exposures treated under the IRB Approach, apply the formula set out in Article 230, sequentially for each individual type of collateral. For that purpose, those institutions shall, after each step of recognising one individual type of FCP, reduce the remaining value of the unsecured exposure (EU) by the adjusted value of the collateral (ES) recognised in that step. In accordance with Article 230(1), the total of ES across all funded credit protection types shall be capped at the value of E·(1+HE), resulting in the following formula:

where:

LGDS,i

= the LGD applicable to FCP i, as specified in Article 230(2);

ES,i	= the current value of FCP i received after the application of the volatility adjustment applicable for the type of FCP (Hc) pursuant to Article 230(2).

Article 232 Other funded credit protection

1.1 References

1.2 Identified Requirements

1.3 Related Standards

2. Identified Requirements

Requirements
Source	Requirement

3. Related Standards

Standards
Source	Requirement

Builddate: 01.01.2027 00:00:00 -Doknr: CELEX:32013R0575
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