Article 5e
Effects of recognition of netting as risk-reducing
1.
Institutions shall treat contractual netting agreements as follows:
(a)
in the case of contracts for novation, institutions may weigh the single net amounts fixed by such contracts rather than the gross amounts involved;
In the application of Article 5b, institutions may take the contract for novation into account when determining:
—
the current replacement cost referred to in Article 5b(1);
—
the notional principal amounts or underlying values referred to in Article 5b(2).
In the application of the Simplified Exposure Method, in determining the notional amount referred to in Article 5c(1), institutions may take into account the contract for novation for the purposes of calculating the notional principal amount. In such cases, institutions shall apply the percentages of Table 2.
(b)
in the case of other netting agreements, institutions shall apply Article 5b as follows:
(i)
the current replacement cost referred to in Article 5b(1) for the contracts included in a netting agreement shall be obtained by taking account of the actual hypothetical net replacement cost which results from the agreement; in the case where netting leads to a net receivable for the institution calculating the net replacement cost, the current replacement cost shall be calculated as ‘0’;
(ii)
the figure for potential future credit exposure referred to in Article 5b(2) for all contracts included in a netting agreement shall be reduced in accordance with the following formula:
PCEred = 0,4 • PCEgross + 0,6 • NGR • PCEgross
where:
PCEred = the reduced figure for potential future credit exposure for all contracts with a given counterparty included in a legally valid bilateral netting agreement;
PCEgross = the sum of the figures for potential future credit exposure for all contracts with a given counterparty which are included in a legally valid bilateral netting agreement and are calculated by multiplying their notional principal amounts by the percentages set out in Table 1;
NGR = the net-to-gross ratio calculated as the quotient of the net replacement cost for all contracts included in a legally valid bilateral netting agreement with a given counterparty (numerator) and the gross replacement cost for all contracts included in a legally valid bilateral netting agreement with that counterparty (denominator).
2.
When calculating the potential future credit exposure in accordance with the formula set out in paragraph 1, point (b)(ii), institutions may treat perfectly matching derivative contracts included in the netting agreement as if those contracts were a single contract with a notional principal equivalent to the net receipts.
When applying Article 5c(1), institutions may treat perfectly matching derivative contracts included in the netting agreement as if those contracts were a single contract with a notional principal equivalent to the net receipts, and the notional principal amounts shall be multiplied by the percentages laid down in Article 5c, Table 2.
For the purposes of this paragraph, perfectly matching derivative contracts mean forward foreign-exchange contracts or similar contracts in which a notional principal is equivalent to cash flows if the cash flows fall due on the same value date and are fully in the same currency.
3.
For all other derivative contracts included in a netting agreement, institutions may reduce the percentages applicable as indicated in Table 3.
Table 3
|
Original maturity |
Interest-rate contracts |
Foreign-exchange contracts |
|
1 year or less |
0,35 % |
1,50 % |
|
More than 1 year but not more than 2 years |
0,75 % |
3,75 % |
|
Additional allowance for each additional year |
0,75 % |
2,25 % |
4.
In the case of interest-rate contracts, institutions may choose either original or residual maturity.