Leverage Ratio Framework

Bank acting as agent: (i) A bank acting as agent in an SFT provides Indemnity or guarantee to only one of the two parties involved, 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. In this situation, the bank is exposed to the counterparty of its customer for the difference in values rather than to the full exposure to the underlying security or cash of the transaction (as is the case where the bank is one of the principals in the transaction). (ii) A bank acting as agent in an SFT provides Indemnity or guarantee to a customer or counterparty for any difference between the value of the security or cash the customer has lent and the value of collateral the borrower has provided and the bank does not own or control the underlying cash or security resource, then the bank will be required to calculate its Leverage ratio exposure measure by applying only measure of CCR calculated as the current exposure without an add-on for PFE (subparagraph (ii) of paragraph 7.3.3). In addition to the conditions mentioned from paragraph 7.3.3 to 7.3.6 bank acting as an agent in an SFT does not provide an indemnity or guarantee to any of the involved parties, the bank is not exposed to the SFT and therefore need not recognize those SFTs in its Leverage ratio exposure measure. (iii) A bank acting as agent in an SFT provides Indemnity or guarantee to a customer or counterparty will be considered eligible for the exceptional treatment above only if the bank's exposure to the transaction is limited to the guaranteed difference between the values of the security or cash its customer has lent and the value of the collateral the borrower has provided. In situations where the bank is further economically exposed (i.e. beyond the guarantee for the difference) to the underlying security or cash in the transaction, a further exposure equal to the full amount of the security or cash must be included in the Leverage ratio exposure measure. For example, due to the bank managing collateral received in the bank's name or on its own account rather than on the customer's or borrower's account (eg by on-lending or managing unsegregated collateral, cash or securities). However, this does not apply to client omnibus accounts that are used by agent lenders to hold and manage client collateral provided that client collateral is segregated from the bank's proprietary assets and the bank calculates the exposure on a client-by-client basis. (iv) A bank acting as agent in an SFT provides Indemnity or guarantee to both parties involved in an SFT (i.e. securities lender and securities borrower), the bank will be required to calculate its Leverage ratio exposure measure in accordance with paragraph 7.3.3 to 7.3.6 separately for each party involved in the transaction. 16 For SFT assets subject to novation and cleared through QCCPs, “gross SFT assets recognized for accounting purposes” are replaced by the final contractual exposure, i.e. the exposure to the QCCP after the process of novation has been applied, given that pre-existing contracts have been replaced by new legal obligations through the novation process. However, banks can only net cash receivables and cash payables with a QCCP if the criteria in paragraph