X1PART THREECAPITAL REQUIREMENTS

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TITLE IICAPITAL REQUIREMENTS FOR CREDIT RISK

CHAPTER 4Credit risk mitigation

Section 3Requirements

Sub-Section 2Unfunded credit protection and credit linked notes

Article 214Sovereign and other public sector counter-guarantees

1

Institutions may treat the exposures referred to in paragraph 2 as protected by a guarantee provided by the entities listed in that paragraph, provided that all the following conditions are satisfied:

a

the counter-guarantee covers all credit risk elements of the claim;

b

both the original guarantee and the counter-guarantee meet the requirements for guarantees set out in Articles 213 and 215(1), except that the counter-guarantee need not be direct;

c

the cover is robust and nothing in the historical evidence suggests that the coverage of the counter-guarantee is less than effectively equivalent to that of a direct guarantee by the entity in question.

2

The treatment set out in paragraph 1 shall apply to exposures protected by a guarantee which is counter-guaranteed by any of the following entities:

a

a central government or a central bank;

b

a regional government or a local authority;

c

a public sector entity, claims on which are treated as claims on the central government in accordance with Article 116(4);

d

a multilateral development bank or an international organisation, to which a 0 % risk weight is assigned under or by virtue of Articles 117(2) and 118 respectively;

e

a public sector entity, claims on which are treated in accordance with Article 116(1) and (2).

3

Institutions shall apply the treatment set out in paragraph 1 also to an exposure which is not counter-guaranteed by any entity listed in paragraph 2 where that exposure's counter-guarantee is in turn directly guaranteed by one of those entities and the conditions listed in paragraph 1 are satisfied.