On-balance sheet netting - CRR Provision

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Regulatory Capital Anatomy™
The JC’s untutored thoughts on how bank capital works.

Article 219 On-balance sheet netting

Loans to and deposits with the lending institution subject to on-balance sheet netting are to be treated by that institution as cash collateral for the purpose of calculating the effect of funded credit protection for those loans and deposits of the lending institution subject to on-balance sheet netting which are denominated in the same currency.

Section 219, CRR

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Under the FCSM, a 0% risk weight may apply to the collateralised part of the exposure, provided the exposure and the collateral are denominated in the same currency, as specified in Article 222(6) of the CRR (whereas, in the presence of a currency mismatch, a 20% risk weight should be associated with the collateralised part of the exposure under Article 222(3) of the CRR)[1]

References