The following is to be read as part of "Core Capital– Tier-I” and “Tier II Capital” guidelines (in addition to existing guidelines), Page 25, Prudential Returns Basel II, March 2007:
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(This is in addition to existing text)
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The limits on Tier 2 and on innovative Tier 1 instruments will be based on the amount of Tier 1 capital after deduction of goodwill but before the deductions of investments pursuant (see Annex 1, International Convergence of Capital Measurement and Capital Standards – June 2006, for an example how to calculate the 15% limit for innovative Tier 1 instruments).
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(Please refer to Paragraph 39 of International Convergence of Capital Measurement and Capital Standards – June 2006)
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The following is to be read as part of “Additional Guidance Notes I” (in addition to existing guidelines), Page 12, Paragraph No 15, Bullet point No 2, Prudential Returns Basel II, March 2007:
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(This is in addition to existing text)
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The comprehensive approach
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Maturity Mismatch
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Where the residual maturity of the CRM is less than that of the underlying credit exposure a maturity mismatch occurs. Where there is a maturity mismatch and the CRM has an original maturity of less than one year, the CRM is not recognized for capital purposes.
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In other cases where there is a maturity mismatch, partial recognition is given to the CRM for regulatory capital purposes as detailed in para 202 – 205, International Convergence of Capital Measurement and Capital Standards – June 2006. Under the simple approach for collateral maturity mismatches will not be allowed.
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(Please refer to Paragraph 143 of International Convergence of Capital Measurement and Capital Standards – June 2006)
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The following is to be read as part of “Additional Guidance Notes I” (in addition to existing guidelines), Page 13, Paragraph No 15, Bullet point No 4, Prudential Returns Basel II, March 2007:
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(This is in addition to existing text)
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The comprehensive approach
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Calculation of capital requirement
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Where the collateral is a basket of assets, the haircut on the basket will be
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H =Σa H, where a1 is the weight of the asset (as measured by units of currency) in the basket and H1 the haircut applicable to that asset.
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(Please refer to Paragraph 150 of International Convergence of Capital Measurement and Capital Standards – June 2006)
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The following is to be read as part of “Additional Guidance Notes I” 17.2, Counterparty Credit Risk On Derivative Contracts, Current Exposure Method, (in addition to existing guidelines), Page 16,, Prudential Returns Basel II, March 2007:
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(This is in addition to existing text)
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Under the Current Exposure Method, the calculation of the counterparty credit risk charge for an individual contract will be as follows:
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counterparty charge = [(RC + add-on) – CA] x r x 8%
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where:
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RC = the replacement cost, add-on = the amount for potential future exposure calculated according to paragraph 92(i) and 92(ii) of Annex 4, International Convergence of Capital Measurement and Capital Standards – June 2006.
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CA = the volatility adjusted collateral amount under the comprehensive approach prescribed in paragraphs 147 to 172, International Convergence of Capital Measurement and Capital Standards – June 2006, or zero if no eligible collateral is applied to the transaction, and
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r = the risk weight of the counterparty.
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(Please refer to Paragraph 186 of International Convergence of Capital Measurement and Capital Standards – June 2006)
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