Directive 2006/48/EC of the European Parliament and of the council (repealed)Dangos y teitl llawn

2. UNFUNDED CREDIT PROTECTION U.K.

2.1. Valuation U.K.

83. The value of unfunded credit protection (G) shall be the amount that the protection provider has undertaken to pay in the event of the default or non-payment of the borrower or on the occurrence of other specified credit events. In the case of credit derivatives which do not include as a credit event restructuring of the underlying obligation involving forgiveness or postponement of principal, interest or fees that result in a credit loss event (e.g. value adjustment, the making of a value adjustment or other similar debit to the profit and loss account), U.K.

(a)

where the amount that the protection provider has undertaken to pay is not higher than the exposure value, the value of the credit protection calculated under the first sentence of this point shall be reduced by 40 %; or

(b)

where the amount that the protection provider has undertaken to pay is higher than the exposure value, the value of the credit protection shall be no higher than 60 % of the exposure value.

84. Where unfunded credit protection is denominated in a currency different from that in which the exposure is denominated (a currency mismatch) the value of the credit protection shall be reduced by the application of a volatility adjustment H_FX as follows: U.K.

G* = G x (1-H_FX)

where:

G is the nominal amount of the credit protection,

G* is G adjusted for any foreign exchange risk, and

H_fx is the volatility adjustment for any currency mismatch between the credit protection and the underlying obligation.

Where there is no currency mismatch

G* = G

85. The volatility adjustments for any currency mismatch may be calculated based on the Supervisory volatility adjustments approach or the Own estimates approach as set out in points 34 to 57. U.K.

2.2. Calculating risk-weighted exposure amounts and expected loss amounts U.K.

2.2.1. Partial protection — tranching U.K.

86. Where the credit institution transfers a part of the risk of a loan in one or more tranches, the rules set out in Articles 94 to 101 shall apply. Materiality thresholds on payments below which no payment shall be made in the event of loss are considered to be equivalent to retained first loss positions and to give rise to a tranched transfer of risk. U.K.

2.2.2. Standardised Approach U.K.

(a) Full protection U.K.

[F1 87. For the purposes of Article 80, g shall be the risk weight to be assigned to an exposure, the exposure value (E) of which is fully protected by unfunded protection (G _A ), where: U.K.

• E is the exposure value according to Article 78; for this purpose, the exposure value of an off-balance sheet item listed in Annex II shall be 100 % of its value rather than the exposure value indicated in Article 78(1);

• g is the risk weight of exposures to the protection provider as specified under Articles 78 to 83; and

• G _A is the value of G* as calculated under point 84 further adjusted for any maturity mismatch as laid down in Part 4.]

Textual Amendments

F1 Substituted by Commission Directive 2009/83/EC of 27 July 2009 amending certain Annexes to Directive 2006/48/EC of the European Parliament and of the Council as regards technical provisions concerning risk management (Text with EEA relevance).

(b) Partial protection — equal seniority U.K.

88. Where the protected amount is less than the exposure value and the protected and unprotected parts are of equal seniority — i.e. the credit institution and the protection provider share losses on a pro-rata basis, proportional regulatory capital relief shall be afforded. For the purposes of Article 80, risk-weighted exposure amounts shall be calculated in accordance with the following formula: U.K.

(E-G_A) x r + G_A x g

where:

[F1 E is the exposure value according to Article 78. For this purpose, the exposure value of an off-balance sheet item listed in Annex II shall be 100 % of its value rather than the exposure value indicated in Article 78(1);]

G_A is the value of G* as calculated under point 84 further adjusted for any maturity mismatch as laid down in Part 4;

r is the risk weight of exposures to the obligor as specified under Articles 78 to 83; and

g is the risk weight of exposures to the protection provider as specified under Articles 78 to 83.

(c) Sovereign guarantees U.K.

89. The competent authorities may extend the treatment provided for in Annex VI, Part 1, points 4 and 5 to exposures or parts of exposures guaranteed by the central government or central bank, where the guarantee is denominated in the domestic currency of the borrower and the exposure is funded in that currency. U.K.

2.2.3. IRB Approach U.K.

Full protection/Partial protection — equal seniority

[F1 90. For the covered portion of the exposure value (E) (based on the adjusted value of the credit protection G _A ), the PD for the purposes of Annex VII, Part 2 may be the PD of the protection provider, or a PD between that of the borrower and that of the guarantor if a full substitution is deemed not to be warranted. In the case of subordinated exposures and non-subordinated unfunded protection, the LGD to be applied for the purposes of Annex VII, Part 2 may be that associated with senior claims. U.K.

91. For any uncovered portion of the exposure value (E) the PD shall be that of the borrower and the LGD shall be that of the underlying exposure. U.K.

92. G _A is the value of G* as calculated under point 84 further adjusted for any maturity mismatch as laid down in Part 4. E is the exposure value according to Annex VII, Part 3. For this purpose, the exposure value of the items listed in Annex VII, Part 3, points 9 to 11 shall be calculated using a conversion factor or percentage of 100 % rather than the conversion factors or percentages indicated in those points.] U.K.