Leverage Ratio Framework

Cash pooling refers to arrangements involving treasury products whereby a bank combines the credit and/or debit balances of several individual participating customer accounts into a single account balance to facilitate cash and/or liquidity management. For the purposes of Leverage ratio exposure measure, the treatment of cash pooling should be as follow: (i) where a cash pooling arrangement entails a transfer at least on a daily basis of the credit and /or debit balances of the individual participating customer accounts into a single account balance, the individual participating customer accounts are deemed to be extinguished and transformed into a single account balance upon the transfer provided the bank is not liable for the balances on an individual basis upon the transfer. Thus, the basis of the leverage ratio exposure measure for such a cash pooling arrangement is the single account balance and not the individual participating customer accounts (ii) If the transfer of credit and/or debit balances of the individual participating customer accounts does not occur daily, extinguishment and transformation into a single account balance is deemed to occur and this single account balance may serve as the basis of the Leverage ratio exposure measure provided all of the following conditions are met: a. In addition to providing for the several individual participating customer accounts, the cash pooling arrangement provides for a single account, into which the balances of all individual participating customer accounts can be transferred and thus extinguished; b. The bank first has a legally enforceable right to transfer the balances of the individual participating customer accounts into a single account so that the bank is not liable for the balances on an individual basis and second at any point in time, the bank must have the discretion and be in a position to exercise this right; c. There are no maturity mismatches among the balances of the individual participating customer accounts included in the cash pooling arrangement or all balances are either overnight or on demand; and d. The bank charges or pays interest and/or fees based on the combined balance of the individual participating customer accounts included in the cash pooling arrangement. e. SAMA does not deem as inadequate the frequency by which the balances of individual participating customer accounts are transferred to a single account. In the event the abovementioned conditions are not met, the individual balances of the participating customer accounts must be reflected separately in the Leverage ratio exposure measure. 3 “regular-way purchases or sales” are purchases or sales of financial assets under contracts for which the terms require delivery of the assets within the time frame established generally by regulation or convention in the marketplace concerned. 7.2 Derivative Exposures 7.2.1 Treatment of derivatives: Exposures to derivatives includes the following components under the Leverage ratio exposure measure: (i) Replacement cost (RC) (ii) Potential future exposure (PFE)