Minimum Capital Requirements for Counterparty Credit Risk (CCR) and Credit Valuation Adjustment (CVA)

In addition to the requirements of 8.18 above, the posted assets or collateral are subject to the counterparty credit risk requirements, regardless of whether they are in the banking or trading book. This includes the increase in the counterparty credit risk exposure due to the application of haircuts. The counterparty credit risk requirements arise where assets or collateral of a clearing member or client are posted with a CCP or a clearing member and are not held in a bankruptcy remote manner. In such cases, the bank posting such assets or collateral must recognize credit risk based upon the assets or collateral being exposed to risk of loss based on the creditworthiness of the entity holding such assets or collateral, as described further below. 8.20 Where such collateral is included in the definition of trade exposures (see Chapter 3of this framework ) and the entity holding the collateral is the CCP, the following risk weights apply where the assets or collateral is not held on a bankruptcy- remote basis: (1) For banks that are clearing members a risk weight of 2% applies. (2) For banks that are clients of clearing members: (a) a 2% risk weight applies if the conditions established in 8.14 and 8.15 are met; or (b) a 4% risk weight applies if the conditions in 8.16 are met. 8.21 Where such collateral is included in the definition of trade exposures (see Chapter 3 of this framework), there is no capital requirement for counterparty credit risk exposure (i.e. the related risk weight or EAD is equal to zero) if the collateral is: (a) held by a custodian; and (b) bankruptcy remote from the CCP. Regarding this paragraph: (1) All forms of collateral are included, such as: cash, securities, other pledged assets, and excess initial or variation margin, also called overcollateralization. (2) The word “custodian” may include a trustee, agent, pledgee, secured creditor or any other person that holds property in a way that does not give such person a beneficial interest in such property and will not result in such property being subject to legally-enforceable claims by such persons creditors, or to a court- ordered stay of the return of such property, if such person becomes insolvent or bankrupt. 8.22 The relevant risk weight of the CCP will apply to assets or collateral posted by a bank that do not meet the definition of trade exposures (for example treating the exposure as a financial institution under standardized approach or internal ratings-based approach to credit risk). 8.23 Regarding the calculation of the exposure, or EAD, where banks use the SA-CCR to calculate exposures, collateral posted which is not held in a bankruptcy remote manner must be accounted for in the net independent collateral amount term in accordance with 6.17 to 6.21 . For banks using IMM models, the alpha multiplier must be applied to the exposure on posted collateral. Default fund exposures 8.24 Where a default fund is shared between products or types of business with settlement risk only (e.g. equities and bonds) and products or types of business which give rise to counterparty credit risk i.e. OTC derivatives, exchange-traded derivatives, SFTs or long settlement transactions, all of the default fund contributions will receive the risk weight determined according to the formula and methodology set forth below, without apportioning to different classes or types of business or products. However, where the default fund contributions from clearing members are segregated by product types and only accessible for specific product types, the capital requirements for those default fund exposures determined according to the formulae and methodology set forth below must be calculated for each specific product giving rise to counterparty credit risk. In case the CCP's prefunded own resources are shared among product types, the CCP will have to allocate those funds to each of the calculations, in proportion to the respective product specific EAD.