Capital Requirements Regulation: Difference between revisions

Capital Requirements Regulation (view source)

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 {{tag|EU Regulation}} {{eureg|575|2013|}} on prudential requirements for credit institutions and investment firms ("'''{{tag|CRR}}'''") may be found on the World Wide Internet at [http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32013R0575 this] location.
-The overarching goal of the {{tag|CRR}} is to strengthen the resilience of the {{tag|EU}} banking sector so it would be better placed to absorb economic shocks while ensuring that banks continue to finance economic activity and growth.
+The overarching goal of {{tag|CRR}} is to strengthen the resilience of the {{tag|EU}} banking sector so it would be better placed to absorb economic shocks while ensuring that banks continue to finance economic activity and growth.
+===Netting, Transactions and Stock Lending===
+*The amount of regulatory capital that has to be held is expressed as a percentage of the “'''total risk exposure amount'''” (Art. 92(2) of {{tag|CRR}}).
+**The '''total risk exposure amount''' includes the counterparty risk associated with {{tag|securities lending}} transactions in the trading book (Art. 92(3)(f) of {{tag|CRR}}).
+*Under the standardised approach, the regulatory capital charge is determined by risk weighting the “'''exposure value'''” of the item in question (Art. 113 of {{tag|CRR}}).
+**The '''exposure value''' of a {{tag|securities lending}} transaction is determined in accordance with '''Chapter 4''' or '''Chapter 6''' of Part 3, Title II (Art. 111(2) of {{tag|CRR}}). The firm can choose which Chapter to apply (Art. 271(2) of {{tag|CRR}}):
+**Under Chapter 4, the cash received under a {{tag|securities lending}} transaction is to be treated as collateral (Art. 193(4) of {{tag|CRR}}).
+**Under Chapter 6, the exposure value can be determined by using an internal model, assuming that the firm has regulatory approval for the use of such a model (Art. 273(2) of {{tag|CRR}}) or by one of the methods set out in that Chapter.
+*Although not expressly stated in relation to stock loans, these apply certain methodologies to particular “contracts” or “transactions”.
+**A securities lending transaction is, both legally and economically a single transaction and is treated as such under {{tag|CRR}} (see, for example, Art. 92(3)(f)).
+*Where the conditions referred to in Art. 206 of {{tag|CRR}} are satisfied, [[netting]] arrangements are recognised.
+**However, if those conditions are not satisfied, the exposure is calculated without giving effect to any close-out netting agreement that may exists, i.e. each transaction is treated individually.
+*This is to be expected because netting arrangements are only recognised if they are legally enforceable. If they are not, the counterparties may have a gross exposure to each other due to the fact that an insolvency official may be able to “cherry pick” between individual transactions, i.e. disclaim unprofitable transactions while enforcing profitable ones.
+**It would be very unusual for an insolvency official to be able to cherry pick individual rights and obligations within a single transaction. I am not aware of any jurisdiction in which this is possible and certainly it is not possible under English law.
+===Length===
-[[File:CRR Art 486.JPG|thumb|right|400px]] There are 486 Articles. Or possibly more: the article cuts off in mid-sentence, as if the poor Eurocrat scribe who was charged writing it down suddenly died of a broken heart, lost the will to live, walked out in a fit of pique, or possibly just went for ''Moules Frites'' at lunch one day, and thought the better of ever coming back.
+[[File:CRR Art 486.JPG|thumb|right|400px]] There are 486 Articles. Or possibly more: the Article cuts off in mid-sentence, as if the poor Eurocrat scribe who was charged writing it down suddenly died of a broken heart, lost the will to live, walked out in a fit of pique, or possibly just went for ''Moules Frites'' at lunch one day, and thought the better of ever coming back.
-They say he's happier now. He lives on a small island near Cyprus, has a little wooden boat painted blue and fishes for what he needs, and no more, every day.
+They say he's happier now. He lives on a small island near Cyprus, has a little wooden boat painted blue and each day he fishes on a painted ocean under the azure skies for what he needs, and no more.