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Basel ii Accord
Sections 147 to 155 |
(ii)
The comprehensive
approach
Calculation
of capital requirement
147.
For a collateralised transaction, the exposure
amount after risk mitigation is
calculated
as follows:
E*
= max {0, [E x (1 + He) – C x (1 – Hc –
Hfx)]}
where:
E*
= the exposure value after risk
mitigation
E =
current value of the exposure
He
= haircut appropriate to the
exposure
C =
the current value of the collateral
received
Hc
= haircut appropriate to the
collateral
Hfx
= haircut appropriate for currency mismatch
between the collateral and
exposure
148.
The exposure amount after risk mitigation will
be multiplied by the risk weight of
the
counterparty
to obtain the risk-weighted asset amount for the
collateralised transaction.
149.
The treatment for transactions where there is a
mismatch between the maturity
of
the
counterparty exposure and the collateral is
given in paragraphs 202 to 205.
150.
Where the collateral is a basket of assets, the
haircut on the basket will
be
H= ΣaiHi, where
ai
is
the weight of the asset (as measured by units of
currency) in the
basket and
Hi
the
haircut applicable to that
asset.
Standard supervisory
haircuts
151.
These are the standard supervisory haircuts
(assuming daily mark-to-market,
daily
remargining
and a 10-business day holding period), expressed
as percentages:
(45) Includes PSEs which are
treated as sovereigns by the national
supervisor.
(46) Multilateral development
banks receiving a 0% risk weight will be treated
as sovereigns.
(47) Includes PSEs which are not
treated as sovereigns by the national
supervisor.
(48) Eligible cash collateral
specified in paragraph 145
(a).
152.
The standard supervisory haircut for currency
risk where exposure and collateral
are
denominated
in different currencies is 8% (also based on a
10-business day holding period
and
daily mark-to-market)
153.
For transactions in which the bank lends
non-eligible instruments (e.g.
noninvestment
grade
corporate debt securities), the haircut to be
applied on the exposure should be the same as
the one for equity traded on a recognised
exchange that is not part of a
main
index.
Own
estimates for
haircuts
154.
Supervisors may permit banks to calculate
haircuts using their own
internal
estimates
of market price volatility and foreign exchange
volatility. Permission to do so will be
conditional on the satisfaction of minimum
qualitative and quantitative standards stated
in
paragraphs
156 to 165.
When
debt securities are rated BBB-/A-3 or higher,
supervisors may allow banks to calculate a
volatility estimate for each category of
security. In determining relevant categories,
institutions must take into account (a) the type
of issuer of the security,
(b)
its rating, (c) its residual maturity, and (d)
its modified duration.
Volatility
estimates must be representative of the
securities actually included in the category for
that bank. For debt securities rated below
BBB-/A-3 or for equities eligible as collateral
(lightly shaded boxes in the above table),
the haircuts must be calculated for each
individual security.
155.
Banks must estimate the volatility of the
collateral instrument or foreign
exchange
mismatch
individually: estimated volatilities for each
transaction must not take into
account
the
correlations between unsecured exposure,
collateral and exchange rates
(see
paragraphs
202 to 205 for the approach to maturity
mismatches).
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