Interest Rate Risk

Partial allowance will be recognised when the value of the two legs (ie long and short) usually moves in the opposite direction. This would be the case in the following situations: (1) The position is captured in [14.16](2), but there is an asset mismatch between the reference obligation and the underlying exposure. Nonetheless, the position meets the requirements in [CRE22.86]. (2) The position is captured in [14.16](1) or [14.17] but there is a currency or maturity mismatch 58 between the credit protection and the underlying asset. (3) The position is captured in [14.17] but there is an asset mismatch between the cash position (or credit derivative) and the credit derivative hedge. However, the underlying asset is included in the (deliverable) obligations in the credit derivative documentation. 14.19 In each of these cases in [14.16] to [14.18], the following rule applies. Rather than adding the specific risk capital requirements for each side of the transaction (ie the credit protection and the underlying asset) only the higher of the two capital requirements will apply. 14.20 In cases not captured in [14.16] to [14.18], a specific risk capital requirement will be assessed against both sides of the position.