(15) Matters related to leverage
| (i) | prevent the build-up of excessive on-balance-sheet and off-balance-sheet leverage in banks and banking groups; and |
| (ii) | mitigate the risks associated with deleveraging that may occur during a period of market uncertainty, such as the amplification of downward pressure on asset prices, material declines in bank capital, and contraction in the availability of credit that may cause damage to the broader financial system and the economy, |
every bank and every controlling company shall calculate a leverage ratio in accordance with the relevant requirements specified in this subregulation (15), to supplement the bank or controlling company’s relevant risk-based capital requirements.
| (b) | For purposes of this subregulation (15) a bank shall calculate its leverage ratio in accordance with the formula specified in paragraph (c) below, provided that— |
| (i) | the bank shall calculate the relevant amount of qualifying capital and reserve funds in accordance with the requirements specified in paragraph (d) below; |
| (ii) | the bank shall calculate the relevant exposure measure in accordance with the requirements specified in paragraph (e) below; |
| (iii) | in all relevant cases, the requirements specified in this subregulation (15) shall apply on a solo and a consolidated basis; |
| (iv) | between 1 January 2013 and 31 December 2017 banks, controlling companies and the Registrar shall apply the relevant requirements specified in this subregulation (15) to monitor the readiness of relevant institutions to implement and fully comply with the said requirements and any subsequent amendments thereto as a minimum standard from 1 January 2018; |
| (v) | during the aforesaid monitoring period of 1 January 2013 to 31 December 2017, a bank shall manage its business in such a manner that its leverage ratio is at no time less than 4 per cent, that is, the bank’s leverage multiple, which is the inverse of the bank’s leverage ratio, shall at no time exceed 25, or such leverage ratio and multiple as may be determined by the Registrar in consultation with the Governor of the Reserve Bank, which leverage ratio shall in no case be less than 3 per cent; |
| (c) | Formula for the calculation of a bank or controlling company's leverage ratio |
A bank shall calculate its required leverage ratio in accordance with the formula specified below:
| where: | qualifying capital and reserve funds means the amount calculated in accordance with the relevant requirements specified in paragraph (d) below; and |
exposure measure means the amount calculated in accordance with the relevant requirements specified in paragraph (e) below.
| (d) | Matters related to the calculation of qualifying capital and reserve funds |
For the calculation of a bank’s leverage ratio, qualifying capital and reserve funds means the sum of common equity tier 1 capital and reserve funds and additional tier 1 capital and reserve funds, as reported in item 77, column 1, of the form BA 700 that relates to the most recent reporting period.
| (e) | Matters related to the calculation of the exposure measure |
For the calculation of a bank’s leverage ratio, unless specifically otherwise provided in this subregulation (15), the relevant amount included in the required exposure measure shall be the amount as determined in accordance with the relevant Financial Reporting Standards that apply from time to time, provided that—
| (i) | the bank shall include any on-balance sheet non-derivative exposures in the exposure measure net of any specific provision or accounting valuation adjustment, such as an accounting credit valuation adjustment; |
| (ii) | the bank shall in no case apply any form of netting between loans and deposits; |
| (iii) | unless specifically otherwise provided in this subregulation (15), the bank shall not reduce the exposure measure through the application of any credit risk mitigation technique, including any physical or financial collateral, guarantees or other form of credit risk mitigation; |
| (iv) | the aforesaid exposure measure shall be equal to the sum of the bank’s— |
| (A) | on-balance sheet exposures |
A bank shall include in this category of on-balance sheet exposures all relevant amounts related to its balance sheet assets, including any relevant amount related to on-balance sheet derivatives collateral and collateral for securities financing transactions (SFT), provided that—
| (i) | the bank shall exclude from this category of on-balance sheet exposures all relevant amounts related to on-balance sheet derivative and SFT assets respectively envisaged in items (B) and (C) below; |
| (ii) | when a banking, financial, insurance or commercial entity is outside the scope of regulatory consolidation, the bank shall include in its exposure measure only the relevant amount related to the investment in the capital of such entities, that is, only the relevant carrying amount of the investment, instead of the underlying assets and other exposures, provided that any investment in the capital of such entities that is deducted from tier 1 capital in terms of the provisions of these Regulations may be excluded from the bank’s exposure measure, as set out further in sub-item (iii) below; |
| (iii) | in order to ensure consistency, the bank may deduct from the exposure measure any balance sheet asset deducted from its tier 1 capital and reserve funds, as envisaged in regulation 38(5) of these Regulations. |
For example:
| (aa) | when a banking, financial or insurance entity is not included in the regulatory scope of consolidation, the relevant amount of any investment in the capital of that entity that is totally or partially deducted from CET1 capital and reserve funds or from additional tier 1 capital and reserve funds, following the envisaged corresponding deduction approach, may also be deducted from the bank’s exposure measure; |
| (bb) | in accordance with the relevant requirements specified in regulation 23(22) of these Regulations, a bank that adopted the internal ratings-based (IRB) approach for the measurement of its exposure to credit risk has to deduct any shortfall in the amount of eligible provisions relative to expected losses from CET1 capital and reserve funds. The bank may deduct the same amount from its exposure measure. |
| (iv) | when the bank recognises fiduciary assets on its balance sheet, the bank may exclude those assets from its exposure measure, provided that— |
| (aa) | the assets meet the relevant IAS 39 criteria for derecognition and, where applicable, the relevant IFRS 10 criteria for deconsolidation; |
| (bb) | the bank shall disclose the extent of such derecognised fiduciary items when it discloses its leverage ratio; |
| (v) | the bank shall in no case deduct any liability item from its measure of exposure, that is, the bank shall not, for example, deduct from its exposure measure any gains or losses on fair valued liabilities or accounting value adjustments on derivative liabilities due to changes in the bank’s own credit risk. |
plus
A bank shall include in this category of derivative exposures the relevant amounts related to its exposures arising from the underlying of any relevant derivative contract, and the related counterparty credit risk (CCR) exposure amount, in accordance with such requirements as may be directed in writing by the Authority;
[Regulation 38(15)(e)(iv)(B) substituted by section 9(b) of Notice No. 1427, GG44048, dated 31 December 2020 - effective 1 January 2021]
| (i) | in all relevant cases— |
| (aa) | the bank shall determine its derivative exposure amount as the replacement cost for the current exposure plus the relevant add-on amount for the potential future exposure; |
| (bb) | any relevant add-on amount shall be based on the effective rather than the apparent notional amounts, that is, for example, when a notional amount is leveraged or enhanced by the structure of the transaction, the bank shall use the effective notional amount when it determines the relevant required potential future exposure amount; |
| (cc) | the derivative exposure amount shall include the relevant exposure that arises when the bank, for example, sells protection by means of a credit derivative instrument; |
| (ii) | in the case of a single derivative exposure not covered by an eligible bilateral netting contract, the bank shall determine the amount to be included in the exposure measure as follows: |
Exposure measure = replacement cost (RC) + add-on
where:
| RC | is the replacement cost of the contract, where the contract has a positive value, and obtained by marking the contract to market |
| add-on | is the potential future exposure amount over the remaining life of the contract, calculated by applying an add-on factor to the notional principal amount of the derivative, as specified in regulation 23(17)(a) of these Regulations |
| (iii) | in the case of a derivative exposure covered by an eligible bilateral netting contract that complies in all respects with the relevant requirements specified in regulation 23(17)(b) of these Regulations, the bank shall calculate its credit exposure for the relevant set of derivative exposures covered by the said contract as the sum of the net mark-to-market replacement cost, if positive, plus an add-on based on the notional underlying principal, which add-on for the relevant netted transactions (ANet) shall be equal to the weighted average of the gross add-on (AGross) and the gross add-on adjusted by the ratio of net current replacement cost to gross current replacement cost (NGR), that is, the add-on ANet shall be calculated as follows: |
ANet = 0.4 * AGross + 0.6 * NGR * AGross
where:
| NGR | is the ratio of the net current exposure (replacement cost) of the transactions or contracts included in the bilateral netting agreement to the gross current exposure (replacement cost) of the said transactions or contracts subject to the legally enforceable netting agreement |
| AGross | is the sum of individual add-on amounts, calculated by multiplying the relevant notional principal amount by the relevant add-on factors, as specified in regulation 23(17)(a) of these Regulations, of all relevant transactions subject to a legally enforceable netting agreement with a particular counterparty |
Provided that—
| (aa) | the bank shall in no case apply any form of cross-product netting to determine its exposure measure; |
| (bb) | in accordance with the relevant requirements specified below, the bank shall not apply any netting between the collateral received and a derivative exposure, irrespective whether or not netting may be permitted in terms of the bank’s operative accounting or risk-based framework provided for in these Regulations; |
| (cc) | the bank shall calculate the aforesaid exposure and NGR on a counterparty by counterparty basis; |
| (dd) | in the case of any forward foreign exchange contract or any other similar contract in which the notional principal amount is equivalent to cash flows, when calculating the relevant potential future credit exposure amount to a netting counterparty, the notional principal means the net receipts falling due on each relevant value date in each relevant currency |
| (iv) | since collateral received in respect of any derivative contract does not necessarily reduce the leverage inherent in a bank’s derivatives position, the bank shall not apply any netting between the collateral received and a derivative exposure, irrespective whether or not netting may be permitted in terms of the bank’s operative accounting or risk-based framework provided for in these Regulations, that is, whenever the bank calculates its relevant exposure amount, the bank shall not reduce the exposure amount by any collateral received from the counterparty; |
| (v) | whenever the bank provides collateral, the bank shall gross up its relevant exposure measure by the amount of any derivatives collateral so provided when the provision of such collateral reduces the value of the bank’s balance sheet assets in terms of its relevant operative accounting framework; |
| (vi) | in the case of any cash variation margin, when all of the conditions specified in subitem (vii) below are met, the bank— |
| (aa) | may regard the cash portion of any variation margin exchanged between counterparties as a form of pre-settlement payment; |
| (bb) | may reduce the replacement cost portion of the exposure measure with the cash portion of variation margin received, and the bank may deduct from the exposure measure the receivables assets from cash variation margin provided, as set out below: |
| (i) | In the case of cash variation margin received, the receiving bank may reduce the replacement cost, but not the add-on portion, of the exposure amount of the derivative asset by the amount of cash received if the positive mark-to-market value of the derivative contract(s) has not already been reduced by the same amount of cash variation margin received in terms of the bank’s relevant operative accounting standard; |
| (ii) | In the case of cash variation margin provided to a counterparty, the posting bank may deduct any resulting receivable from its relevant exposure measure, where the cash variation margin has been recognised as an asset in terms of the bank’s relevant operative accounting framework. |
Provided that cash variation margin shall in no case be used to reduce any relevant potential future exposure amount, not even in the calculation of the net-to-gross ratio (NGR) as envisaged in the relevant formula specified hereinbefore.
| (vii) | the provisions of subitem (vi) above relating to cash variation margin shall apply only when all of the conditions specified below are met: |
| (aa) | For trades not cleared through a qualifying central counterparty (QCCP), the cash received by the recipient counterparty shall not be segregated. |
| (bb) | Variation margin shall be calculated and exchanged on a daily basis, based on mark-to-market valuation of the relevant derivatives positions. |
| (cc) | The cash variation margin shall be received in the same currency as the currency of settlement of the relevant derivative contract. |
| (dd) | The variation margin exchanged shall be the full amount necessary to fully extinguish the mark-to-market exposure of the derivative subject to the threshold and minimum transfer amounts applicable to the relevant counterparty. |
| (ee) | The relevant derivatives transactions and variation margins shall be covered by a single master netting agreement between the legal entities that are the counterparties in the relevant derivatives transaction, provided that the said master netting agreement— |
| (i) | shall explicitly state that the relevant counterparties agree to settle net any payment obligations covered by such a netting agreement, taking into account any variation margin received or provided if a credit event occurs involving either counterparty; |
| (ii) | shall be legally enforceable and effective in all relevant jurisdictions, including in the event of default and bankruptcy or insolvency |
| (viii) | when the bank acts as a clearing member and offers clearing services to clients— |
| (aa) | and the bank is obligated to reimburse a client for any losses suffered due to changes in the value of all relevant transactions in the event that a central counterparty (CCP) defaults, the bank shall capture all relevant trade exposures to the CCP in a manner similar to any other type of derivatives transaction entered into by the bank, provided that for purposes of this subregulation (15), the bank’s relevant amount of trade exposures shall include initial margin, irrespective whether or not it is posted in a manner that makes it insolvency remote from the relevant CCP; |
| (bb) | but the bank has no obligation, based on a legally enforceable contractual agreement with the client, to reimburse the client for any losses suffered due to changes in the value of its transactions in the event that a qualifying central counterparty (QCCP) defaults, the bank may exclude the relevant amounts resulting from any such trade exposures to the QCCP from its exposure measure; |
| (cc) | and the bank guarantees to the CCP the performance of its client in respect of derivative trade exposures arising from derivatives transactions directly entered into between the client of the bank and the CCP, the bank shall calculate its related exposure resulting from the guarantee in a manner similar to any other type of derivatives transaction directly entered into by the bank, as if the bank had directly entered into the transaction with the client, including any relevant amount related to the receipt or provision of any cash variation margin; |
| (ix) | in the case of any relevant— |
| (aa) | single-name credit derivative instrument, the bank shall calculate the relevant add-on amount in accordance with the relevant requirements specified in regulation 23(17)(a)(iv) of these Regulations; |
| (bb) | first-to-default, second-to-default or nth-to-default credit derivative transaction the bank shall determine the relevant add-on in accordance with the relevant requirements specified in regulation 23(17)(a)(vi) of these Regulations; |
| (x) | since a written credit derivative instrument creates a notional credit exposure that arises from the creditworthiness of the relevant reference entity, a bank shall, in addition to the CCR exposure arising from the fair value of the relevant contract and any related collateral, treat any written credit derivative instrument consistently with cash instruments, such as loans or bonds, for the purposes of the bank’s exposure measure, provided that— |
| (aa) | in order to duly capture the credit exposure to the relevant underlying reference entity, the bank shall include in its exposure measure the effective notional amount referenced by the relevant written credit derivative instrument; |
| (bb) | the bank may reduce the aforesaid effective notional amount of the written credit derivative instrument by any negative change in the fair value amount reflected in the calculation of the bank’s tier 1 capital, provided that— |
| (i) | the provisions of this sub-sub-item (bb) shall be read with the relevant provisions of sub-sub-item (cc) below; |
| (ii) | the effective notional amount of any offsetting purchased credit protection shall also be reduced by any resulting positive change in the fair value reflected in the calculation of the bank’s tier 1 capital; |
| (iii) | when the bank buys credit protection through a total return swap (TRS) and records the net payments received as net income, but does not record offsetting deterioration in the value of the written credit derivative, either through reductions in fair value or by an addition to reserves, reflected in the bank’s tier 1 capital, the credit protection shall not be recognised for the purpose of offsetting the effective notional amounts related to written credit derivative instruments; |
| (cc) | the bank may also reduce the resulting amount by the effective notional amount of a purchased credit derivative instrument on the same reference name, provided that— |
| (i) | for purposes of this subregulation (15), two reference names shall be considered the same or identical only if they refer to exactly the same legal entity or person; |
| (ii) | the remaining maturity of the credit protection purchased shall be equal to or greater than the remaining maturity of the written credit derivative instrument; |
| (iii) | in the case of a single-name credit derivative instrument the bank shall comply with the relevant further requirements specified in sub-sub-item (dd) below; |
| (iv) | in the case of protection purchased on a pool of reference entities the bank shall comply with the relevant further requirements specified in sub-sub-items (ee) and (ff) below; |
| (dd) | in the case of a single-name credit derivative instrument— |
| (i) | credit protection purchased shall be in respect of a reference obligation that ranks pari passu with or junior to the underlying reference obligation of the written credit derivative, provided that in the case of tranched products, the purchased protection shall be on a reference obligation with the same level of seniority; |
| (ii) | protection purchased that references a subordinated position may offset protection sold on a more senior position of the same reference entity only if a credit event on the senior reference asset would result in a credit event on the subordinated reference asset; |
| (ee) | protection purchased on a pool of reference entities may offset the relevant amount related to protection sold on individual reference names only if the protection purchased is economically equivalent to buying protection separately on each of the relevant individual names in the pool. |
This would, for example, be the case if the bank purchased protection on an entire securitisation structure.
| (ff) | when the bank purchases protection on a pool of reference names, but the credit protection does not cover the entire pool, that is, the protection covers only a subset of the pool, as, for example, in the case of an nth-to-default credit derivative or a securitisation tranche, then no offsetting shall be permitted for the protection sold on individual reference names. |
However, the said purchased protections may offset sold protections on a pool, provided the purchased protection covers the entirety of the subset of the pool on which protection has been sold, that is, the bank shall only recognise offsetting when the pool of reference entities and the level of subordination in both transactions are identical.
| (gg) | since the bank has to include the effective notional amounts related to written credit derivative instruments in its exposure measure, which credit derivative instruments are also subject to the relevant add-on amounts for potential future exposure, and as such the bank’s exposure measure for written credit derivative instruments may be overstated, the bank may deduct the individual potential future exposure add-on amount relating to a written credit derivative instrument from the relevant gross add-on amount envisaged in subitems (ii) and (iii) above, provided that— |
| (i) | when an effective bilateral netting contract is in place, as envisaged in subitem (iii) above, the bank may, when it calculates ANet = 0.4* AGross + 0.6* NGR* AGross, reduce AGross by the relevant individual add-on amount, that is, the relevant notional amount multiplied by the appropriate add-on factor, which relates to a written credit derivative instrument of which the notional amount is included in the bank’s exposure measure, provided that the bank shall not make any adjustment to NGR; |
| (ii) | when no effective bilateral netting contract is in place, the bank may set the relevant potential future exposure add-on to zero, in order to avoid the risk of double-counting; |
plus
| (C) | exposures arising from securities financing transactions (SFT); |
A bank shall include in its exposure measure any relevant exposure arising from its securities financing transactions, provided that—
| (i) | for purposes of this subregulation (15) securities financing transactions shall include transactions such as repurchase agreements, resale agreements, reverse repurchase agreements, securities lending transactions, securities borrowing transactions, and margin lending transactions, where the value of the respective transactions depends on market valuations and the transactions are often subject to margin agreements; |
| (ii) | in the case of a bank— |
| (aa) | that acts as principal, the bank shall include in its exposure measure the sum of the respective amounts envisaged in subitems (iv) and (v) below; |
| (bb) | that acts as an agent, the bank shall include in its exposure measure the sum of the respective amounts envisaged in subitem (vii) below; |
| (iii) | since leverage essentially remains with the lender of the security in a securities financing transaction, the bank shall reverse any sales-related accounting entry whenever the bank applied sale accounting entries in terms of any relevant accounting framework in respect of its securities financing transactions, that is, irrespective of the bank’s accounting framework the bank shall calculate its exposure measure as if its securities financing transactions constitute financing transactions and not sales transactions; |
| (iv) | a bank that acts as principal shall include in its exposure measure the relevant gross amount of assets that relates to securities financing transactions, recognised as assets in accordance with the relevant Financial Reporting Standards issued from time to time, provided that— |
| (aa) | for purposes of this subregulation (15), unless specifically otherwise stated in this subregulation (15)(e), the bank shall disregard any form of accounting netting, that is, unless specifically otherwise stated in this subregulation (15)(e), the bank shall not, for example, recognise any accounting netting of cash payables against cash receivables; |
| (bb) | in the case of any assets related to securities financing transactions subject to novation and cleared through a QCCP, the bank shall include in its exposure measure the relevant final contractual exposure, given the fact that pre-existing contracts have been replaced by new legal obligations through the process of novation; |
| (cc) | the bank shall adjust the aforesaid gross amount of assets by excluding from the exposure measure the value of any securities received in terms of a securities financing transaction, when the bank has recognised the securities as assets on its balance sheet, that is, when the bank recognised securities received in terms of a securities financing transaction as assets because the bank, as recipient, has the right to rehypothecate the said securities, but the bank has not done so, and in terms of any relevant accounting standard the bank recognised the value of such securities received in terms of the securities financing transaction as assets, the bank shall adjust the aforesaid gross amount of assets by excluding from the exposure measure the value of such securities received; |
| (dd) | notwithstanding the provisions of sub-subitem (aa) above, the bank may measure cash payables and cash receivables in terms of securities financing transactions with the same counterparty on a net basis if all of the following conditions are met: |
| (i) | the relevant transactions have the same explicit final settlement date; |
| (ii) | the bank’s right to set off the amount owed to the counterparty against the amount owed by the counterparty shall be legally enforceable in all relevant jurisdictions, both currently in the normal course of business and in the event of default, insolvency or bankruptcy; and |
| (iii) | the bank and the relevant counterparty intend to settle net, settle simultaneously, or the relevant transactions are subject to a settlement mechanism that results in the functional equivalent of net settlement, that is, the cash flows of the relevant transactions are essentially a single net amount on the settlement date, provided that, to ensure the aforesaid equivalence to a single net amount, both transactions shall be settled through the same settlement system and the settlement arrangements shall be supported by cash and/or intraday credit facilities intended to ensure that settlement of both transactions will occur by the end of the business day and the linkages to collateral flows do not result in the unwinding of net cash settlement; |
| (v) | a bank that acts as principal shall include in its exposure measure a measure of counterparty credit risk, calculated as the current exposure without an add-on for potential future exposure, as follows: |
| (aa) | when the bank has in place a qualifying master netting agreement that complies with all the relevant requirements specified in subitem (vi) below, the said current exposure amount (E*) shall be the greater of zero and the total fair value of securities and cash lent to a counterparty in respect of all relevant transactions covered by the said qualifying master netting agreement (denoted by ∑Ei), less the total fair value of cash and securities received from that counterparty for those transactions (denoted by ∑Ci), as depicted in the formula specified below: |
E* = max {0, [ΣEi – ΣCi]}
where:
| E* | is the relevant current exposure amount |
| ΣEi | is the total fair value of securities and cash lent to a counterparty for all relevant transactions included in the said qualifying master netting agreement |
| ΣCi | is the total fair value of cash and securities received from that counterparty for the said transactions |
| (bb) | when the bank does not have a qualifying master netting agreement in place, the said current exposure amount related to transactions with the counterparty shall be calculated on a transaction by transaction basis, that is, each relevant transaction shall be treated as its own netting set, as depicted in the formula specified below: |
Ei* = max {0, [Ei – Ci]}
where:
| Ei* | is the relevant current exposure amount related to the specific transaction with the counterparty |
| (vi) | a bank that acts as principal may recognise the effect of a bilateral master netting agreements in respect of its securities financing transactions on a counterparty by counterparty basis, as envisaged in and in accordance with the relevant requirements specified in subitem (v) above, provided that— |
| (aa) | the relevant bilateral master netting agreement— |
| (i) | shall be legally enforceable in each relevant jurisdiction upon the occurrence of an event of default, regardless of whether the counterparty is insolvent or bankrupt; |
| (ii) | shall provide the non-defaulting party with the right to terminate and close out in a timely manner all relevant transactions under the agreement upon an event of default, including in the event of insolvency or bankruptcy of the counterparty; |
| (iii) | shall make provision for the netting of gains and losses on transactions, including the value of any relevant collateral, terminated and closed out in terms of the bilateral master netting agreements, so that a single net amount is owed by one party to the other; |
| (iv) | shall make provision for the prompt liquidation or setoff of collateral upon the event of default; and |
| (v) | all relevant rights envisaged in this sub-sub-item (aa) shall be legally enforceable in each relevant jurisdiction upon the occurrence of an event of default, regardless of the counterparty’s insolvency or bankruptcy; |
| (bb) | the bank may apply netting across positions held in the bank’s banking book and its trading book only when— |
| (i) | all the relevant transactions are marked to market on a daily basis; and |
| (ii) | all the collateral instruments used in respect of the relevant transactions are recognised as eligible financial collateral in the banking book; |
| (vii) | since a bank that acts as agent in a securities financing transaction— |
| (aa) | generally provides only an indemnity or guarantee to one of the two persons involved in the transaction, and only for the difference between the value of the security or cash its customer has lent and the value of collateral the borrower has provided; and |
| (bb) | the bank is essentially exposed to the counterparty of its customer for only the difference in values instead of the full exposure to the underlying security or cash of the transaction; and |
| (cc) | the bank normally does not own or control the underlying cash or security resource, and as such the bank is unable to leverage the resource, |
the bank shall include in its exposure measure only the amounts envisaged in subitem (v) above, provided that whenever the bank is economically further exposed to the underlying security or cash in the transaction, that is, for an amount larger than the aforesaid guarantee for the difference, the bank shall include in its exposure measure the relevant further amount of exposure, equal to the relevant full amount of exposure to the underlying security or cash in the transaction.
plus
(D) off-balance sheet items
A bank shall include in its exposure measure any relevant off-balance sheet items, provided that—
(i) for purposes of this subregulation (15), off-balance sheet items or exposures include—
(aa) commitments, including liquidity facilities, whether or not unconditionally cancellable;
(bb) all relevant direct credit substitutes;
(cc) acceptances;
(dd) standby letters of credit; and
(ee) trade letters of credit;
| (ii) | for purposes of this subregulation (15), the bank shall convert the notional amount of its off-balance sheet items into credit exposure equivalents through the application of the credit conversion factors specified below: |
Description of off-balance sheet item
|
Credit conversion factor
|
Irrevocable commitments other than securitisation liquidity facilities with an original maturity up to one year
|
20%
|
Irrevocable commitments other than securitisation liquidity facilities with an original maturity of more than one year
|
50%
|
Commitments that are unconditionally cancellable at any time by the bank without prior notice or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness
|
10%
|
Direct credit substitutes, such as general guarantees of indebtedness; standby letters of credit serving as financial guarantees for loans and securities; acceptances and endorsements with the character of acceptances
|
100%
|
Forward asset purchases, forward forward deposits and partly paid shares and securities, which represent commitments with certain drawdown
|
100%
|
Transaction-related contingent items, such as performance bonds; bid bonds; warranties and standby letters of credit related to particular transactions
|
50%
|
Note issuance facilities (NIFs) and revolving underwriting facilities (RUFs)
|
50%
|
Short-term self-liquidating trade letters of credit arising from the movement of goods, such as documentary credits collateralised by the underlying shipment - applied to both issuing and confirming banks
|
20%
|
An undertaking to provide a commitment on an off-balance sheet item
|
Banks shall apply the lower of the two applicable CCFs
|
Off-balance sheet securitisation exposures, other than an eligible liquidity facility or an eligible servicer cash advance facility
|
100%
|
Eligible liquidity facilities other than undrawn servicer cash advances or facilities that are unconditionally cancellable without prior notice
|
50%
|
Undrawn servicer cash advances or facilities that are unconditionally cancellable without prior notice
|
10%
|
[Regulation 38(17) renumbered as regulation 38(15) by regulation 22(kk)(iv), and substituted by regulation 22(zz), of Notice No. 297, GG 40002, dated 20 May 2016]
