CA-15.4 CA-15.4 Additional Detail for Computation Purposes
Bilateral Netting
CA-15.4.1
For the purpose of the leverage ratio measure, bilateral netting is allowed subject to the following conditions:
(a)Bahraini conventional bank licensees may net transactions subject to novation under which any obligation between a bank and its counterparty to deliver a given currency on a given value date is automatically amalgamated with all other obligations for the same currency and value date, legally substituting one single amount for the previous gross obligations; or(b)Bahraini conventional bank licensees may also net transactions subject to any legally valid form of bilateral netting not covered in (a), including other forms of novation.Added: October 2018
CA-15.4.2
In both cases in CA-15.5.1 (a) and (b), a
Bahraini conventional bank licensee will need to satisfy the CBB that it has:(a) A netting contract or agreement with the counterparty that creates a single legal obligation, covering all included transactions, such that theBahraini conventional bank licensee would have either a claim to receive or obligation to pay only the net sum of the positive and negative mark-to-market values of included individual transactions in the event a counterparty fails to perform due to any of the following: default, bankruptcy, liquidation or similar circumstances;(b) Written and reasoned legal opinions that, in the event of a legal challenge, the relevant courts and administrative authorities would find theBahraini conventional bank licensee's exposure to be such a net amount under:(i) The law of the home jurisdiction in which the counterparty is incorporated and, if the foreign branch of a counterparty is involved, then also under the law of jurisdiction in which the branch is located;(ii) The law that governs the individual transactions; and(iii) The law that governs any contract or agreement necessary to effect the netting.
The CBB must be satisfied that the netting is enforceable under the laws of each of the relevant jurisdictions; and(c) Procedures in place to ensure that the legal characteristics of netting arrangements are kept under review in the light of possible changes in relevant law.Added: October 2018
CA-15.4.3
Contracts containing walkaway clauses are not eligible for netting for the purpose of calculating the leverage ratio requirements. A walkaway clause is a provision that permits a non-defaulting counterparty to make only limited payments, or no payment at all, to the estate of a defaulter, even if the defaulter is a net creditor.
Added: October 2018
Securities Financing Transaction Exposures 37
CA-15.4.4
Where a qualifying master netting agreement is in place, the effects of bilateral netting agreements for
SFTs are recognised on a counterparty by counterparty basis if the agreements are legally enforceable in each relevant jurisdiction upon the occurrence of an event of default and regardless of whether the counterparty is insolvent or bankrupt. In addition, netting agreements must:(a) Provide the non-defaulting party with the right to terminate and close out in a timely manner all transactions under the agreement upon an event of default, including in the event of insolvency or bankruptcy of the counterparty;(b) Provide for the netting of gains and losses on transactions (including the value of any collateral) terminated and closed out under it so that a single net amount is owed by one party to the other;(c) Allow for the prompt liquidation or setoff of collateral upon the event of default; and(d) Be, together with the rights arising from provisions required in (a) and (c) above, legally enforceable in each relevant jurisdiction upon the occurrence of an event of default regardless of the counterparty's insolvency or bankruptcy.Added: October 2018
37 The provisions related to qualifying master netting agreements (MNAs) for SFTs are intended for the calculation of the counterparty add-on of the exposure measure of SFTs.
CA-15.4.5
Netting across positions held in the banking book and trading book can only be recognised when the netted transactions fulfil the following conditions:
(a) All transactions are marked to market daily; and(b) The collateral instruments used in the transactions are recognised as eligible financial collateral in the banking book.Added: October 2018
Off-balance Sheet Items
CA-15.4.6
For the purpose of the leverage ratio, OBS items must be converted into credit exposure equivalents through the use of credit conversion factors (CCFs).
Added: October 2018
CA-15.4.7
For the purpose of Paragraph CA-15.4.6, commitments include any contractual arrangement that has been offered by the bank and accepted by the client to extend credit, purchase assets or issue credit substitutes.
Added: October 2018
CA-15.4.8
Direct credit substitutes, e.g. general guarantees of indebtedness (including standby letters of credit serving as financial guarantees for loans and securities) and acceptances (including endorsements with the character of acceptances) receive a CCF of 100%.
Added: October 2018
CA-15.4.9
The exposure amount associated with unsettled financial asset purchases where regular-way unsettled trades are accounted for at settlement date, a 100% CCF applies.
Added: October 2018
CA-15.4.10
Forward asset purchases, forward deposits and partly paid shares and securities, which represent commitments with certain drawdown, will receive a CCF of 100%.
Added: October 2018CA-15.4.11
The following transaction-related contingent items — performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions, receive a CCF of 50%.
Added: October 2018
CA-15.4.12
Note issuance facilities (NIFs), and revolving underwriting facilities (RUFs) receive a CCF of 50%.
Added: October 2018
CA-15.4.13
A 40% CCF will be applied to commitments, regardless of the maturity of the underlying facility, unless they qualify for a lower CCF.
Added: October 2018
CA-15.4.14
A 20% CCF will be applied to both the issuing and confirming banks of short-term38 self-liquidating trade letters of credit arising from the movement of goods (e.g. documentary credits collateralised by the underlying shipment).
Added: October 2018
38 That is, with a maturity below one year. For further details see Basel Committee on Banking Supervision, Treatment of trade finance under the Basel capital framework, October 2011, www.bis.org/publ/bcbs205.pdf.
CA-15.4.15
A 10% CCF will be applied to commitments that are unconditionally cancellable at any time by the bank without prior notice, or that effectively provide for automatic cancellation due to deterioration in a borrower's creditworthiness.
Added: October 2018
CA-15.4.16
The CBB shall evaluate various factors in the jurisdiction, which may constrain banks' ability to cancel the commitment in practice, and consider applying a higher CCF to certain commitments as appropriate.
Added: October 2018
CA-15.4.17
Where there is an undertaking to provide a commitment on an off-balance sheet item, banks are to apply the lower of the two applicable CCFs.39
Added: October 2018
39 For example, if a bank has a commitment to open short-term self-liquidating trade letters of credit arising from the movement of goods, a 20% CCF will be applied (instead of a 40% CCF); and if a bank has an unconditionally cancellable commitment to issue direct credit substitutes, a 10% CCF will be applied (instead of a 100% CCF).
CA-15.4.18
All off-balance sheet securitisation exposures, except an eligible liquidity facility or an eligible servicer cash advance facility as set out in Paragraphs CA-6.4.18 and CA-6.4.20 of this Module, receive a CCF of 100% conversion factor. All eligible liquidity facilities receive a CCF of 50%. Undrawn servicer cash advances or facilities that are unconditionally cancellable without prior notice are eligible for a 10% CCF.
Added: October 2018
