Minimum Capital Requirements for Credit Risk

The types of instruments and the CCFs applied to them under the F-IRB approach are the same as those in the standardized approach, as set out in paragraphs 7.86 to 7.93 . 12.34 The amount to which the CCF is applied is the lower of the value of the unused committed credit line, and the value that reflects any possible constraining of the availability of the facility, such as the existence of a ceiling on the potential lending amount which is related to a borrower’s reported cash flow. If the facility is constrained in this way, the bank must have sufficient line monitoring and management procedures to support this contention. 12.35 Where a commitment is obtained on another off-balance sheet exposure, banks under the foundation approach are to apply the lower of the applicable CCFs. EAD under the advanced approach 12.36 Banks which meet the minimum requirements for use of their own estimates of EAD (see paragraphs 16.88 to 16.97 ) will be allowed for exposures for which A-IRB is permitted (see paragraph 10.31 ) to use their own internal estimates of EAD for undrawn revolving commitments 58 to extend credit, purchase assets or issue credit substitutes provided the exposure is not subject to a CCF of 100% in the foundation approach (see paragraph 12.33). Standardized approach CCFs must be used for all other off-balance sheet items (for example, undrawn nonrevolving commitments), and must be used where the minimum requirements for own estimates of EAD are not met. The EAD for each exposure that is not in the sovereign asset class that is used as input into the risk weight formula and the calculation of expected loss is subject to a floor that is the sum of: (i) the on balance sheet amount; and (ii) 50% of the off balance sheet exposure using the applicable CCF in the standardized approach. Exposures that give rise to counterparty credit risk 12.37 For exposures that give rise to counterparty credit risk according to The Counterparty Credit Risk (CCR) Framework (i.e. OTC derivatives, exchange- traded derivatives, long settlement transactions and securities financing transactions (SFTs)), the EAD is to be calculated under the rules set in chapters 3 to 8 of the Counterparty Credit Risk (CCR) framework . 12.38 For SFTs, banks may recognize a reduction in the counterparty credit risk requirement arising from the effect of a master netting agreement providing that it satisfy the criteria set out in paragraphs 9.61 and 9.62 of the standardized approach. The bank must calculate E*, which is the exposure to be used for the counterparty credit risk requirement taking account of the risk mitigation of collateral received, using the formula set out in paragraph 9.64 of the standardized approach. In calculating risk-weighted assets and expected loss (EL) amounts for the counterparty credit risk arising from the set of transactions covered by the master netting agreement, E* must be used as the EAD of the counterparty.