Credit Risk Mitigation Agreement

the risk to which marginal agreements expose them (for example. B The volatility and liquidity of collateral securities), the meaning thresholds for payments below which no payment is made in the event of a loss correspond to the holdings of first loss positions and must be fully deducted from the capital of the bank that buys the credit guarantee. The risk measurement system should be used in combination with internal exposure limits. The amount of post-mitigation exposure is multiplied by the counterparty`s risk weighting in order to obtain the amount of the weighted asset for the guaranteed transaction. In addition to determining the credit quality of the counterparty and our risk-taking, we also use different credit risk mitigation techniques to optimize credit risk and reduce potential credit losses. Credit risk co-assets are used in the following forms: in a simple approach, the risk weighting of the hedging instrument that partially secures or secures the exposure is replaced by the balance of the counterparty. For more details on this framework, see CRE22.78 at CRE22.80. Clearing applies to both exchange-traded derivatives (“forward and options” transactions and exchange-traded derivatives (“over-the-counter derivatives trading”). Compensation also applies to securities financing transactions, as documentation, structure and nature of risk mitigation allow for offsetting with the underlying credit risk.

If credit protection is on a currency other than money, in which the exposure is denominated – i.e. there is a currency intrusion – the amount of the debt considered protected is reduced by the application of a HFX discount according to the following formula: banks can opt for a simple approach that replaces the weighting of collateral with the risk weighting of the counterparty for the guaranteed part of the exposure (generally subject to a basement of 20 %) or for the overall approach that allows for more accurate compensation of security and exposures by effectively reducing the amount of exposure to the value assigned to the security. Banks can act in the bank book in both cases, but only under the overall approach of the trading portfolio. The partial warranty is recognized in both approaches. The asymmetries at the maturity of the underlying risk and collateral are only allowed as part of the overall approach. The standard prudential discount for foreign exchange risks whose exposures and guarantees are denominated in different currencies is 8% (also on the basis of a 10-day holding period and a daily mark-to-market). Validation of any substantial changes to the risk measurement process Banks should have robust procedures in place to ensure compliance with a range of internal guidelines, controls and procedures for managing the risk measurement system. Only credit risk swaps and total return swaps that offer collateral-appropriate credit protection can be recognized. The following exception applies.

If a bank acquires credit protection through a total return swap and accounts for net payments received on the swap as net proceeds, but does not account for the deterioration in the value of the protected asset (either by depreciation or by adding reserves), credit coverage is not accounted for.