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Capital Requirements Regulation: Difference between revisions
Capital Requirements Regulation (view source)
Revision as of 12:34, 3 December 2014
, 3 December 2014→Netting, Transactions and Stock Lending
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===Netting, Transactions and Stock Lending=== | ===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. {{crrprov|92(2)}} of {{tag|CRR}}). | |||
{{crrsnap|92(2)}} | |||
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}}). | *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}}): | **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}}): | ||
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*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. | *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. | **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=== | ===Length=== | ||