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

Banks must calculate the counterparty credit risk charge for over-the-counter (OTC) derivatives, repo-style and other transactions booked in the trading book, separate from the capital requirement for market risk. 35 The risk weights to be used in this calculation must be consistent with those used for calculating the capital requirements in the banking book. Thus, banks using the standardized approach in the banking book will use the standardized approach risk weights in the trading book and banks using the internal ratings-based (IRB) approach in the banking book will use the IRB risk weights in the trading book in a manner consistent with the IRB roll-out situation in the banking book as described in 10.44 to 10.50 of the Minimum Capital Requirements for Credit Risk . For counterparties included in portfolios where the IRB approach is being used the IRB risk weights will have to be applied. 9.2 In the trading book, for repo-style transactions, all instruments, which are included in the trading book, may be used as eligible collateral. Those instruments which fall outside the banking book definition of eligible collateral shall be subject to a haircut at the level applicable to non-main index equities listed on recognized exchanges (as noted in 9.44 of the Minimum Capital Requirements for Credit Risk ). Where banks are using a value-at-risk approach to measuring exposure for securities financing transactions, they also may apply this approach in the trading book in accordance with h 9.48 to 9.49 of the Minimum Capital Requirements for Credit Risk and Chapter 5 of this framework. 9.3 The calculation of the counterparty credit risk charge for collateralized OTC derivative transactions is the same as the rules prescribed for such transactions booked in the banking book (see Chapter 5 of this framework). 9.4 The calculation of the counterparty charge for repo-style transactions will be conducted using the rules in Chapter 5 of this framework spelt out for such transactions booked in the banking book. The firm-size adjustment for small or medium-sized entities as set out in chapter 11.9 of the Minimum Capital requirements for Credit Risk shall also be applicable in the trading book. 35 The treatment for unsettled foreign exchange and securities trades is set forth in the Risk weight multiplier to certain exposures with currency mismatch of the individual exposures under standardized approach for credit risk of Basel III: Finalizing post-crisis reforms. 10. Minimum Haircut Floors for Securities Financing Transactions Scope 10.1 This chapter specifies the treatment of certain non-centrally cleared securities financing transactions (SFTs) with certain counterparties. The requirements are not applicable to banks in jurisdictions that are prohibited from conducting such transactions below the minimum haircut floors specified in 10.6 below. 10.2 The haircut floors found in 10.6 below apply to the following transactions: (1) Non-centrally cleared SFTs in which the financing (i.e. the lending of cash) against collateral other than government securities is provided to counterparties who are not supervised by a regulator that imposes prudential requirements consistent with international norms. (2) Collateral upgrade transactions with these same counterparties. A collateral upgrade transaction is when a bank lends a security to its counterparty and the counterparty pledges a lower-quality security as collateral, thus allowing the counterparty to exchange a lower-quality security for a higher quality security. For these transactions, the floors must be calculated according to the formula set out in 10.9 below. 10.3 SFTs with central banks are not subject to the haircut floors.