Effective from Jan 01 2023 - Dec 31 2022 To view other versions open the versions tab on the right
24.11
Leverage is defined as the ratio of total assets to total equity. Leverage is taken into account in the MBA by using the maximum financial leverage permitted in the fund’s mandate or in the national regulation governing the fund.
24.12
When determining the capital requirement related to its equity investment in a fund, a bank must apply a leverage adjustment to the average risk weight of the fund, as set out in Error! Reference source not found., subject to a cap of 1250%.
24.13
After calculating the total risk-weighted assets of the fund according to the LTA or the MBA, banks will calculate the average risk weight of the fund (Avg RWfund) by dividing the total risk-weighted assets by the total assets of the fund.
Using Avg RWfund and taking into account the leverage of a fund (Lvg), the risk- weighted assets for a bank’s equity investment in a fund can be represented as follows:
The effect of the leverage adjustments depends on the underlying riskiness of the portfolio (i.e. the average risk weight) as obtained by applying the standardized approach or the IRB approaches for credit risk. The formula can therefore be re- written as:
