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CM-5.3.1

Past version: Effective from 01 Oct 2007 to 31 Dec 2010
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For large exposure(s) purposes, the measure of exposure should reflect the maximum loss that will arise should a counterparty fail or the loss that may arise due to the realisation of any lending assets, shareholdings or other exposures or off-balance sheet positions. In certain cases (particularly derivatives), the measure of a large exposure may be larger than that used in published accounts. Consistent with this, the exposure should include the amount at risk arising from a bank's:

(a) Claims on a counterparty including actual claims, and potential claims which would arise from the drawing down in full of undrawn advised facilities (whether revocable or irrevocable, conditional or unconditional) which the bank has committed itself to provide, and claims which the bank has committed itself to purchase or underwrite. In the case of undrawn (overdraft) facilities, the advised limit must be included in the measure of exposure (after deduction of any provisions). In the case of loans, the net outstanding balance as shown in the books of the bank should be included in the measure of exposure after deduction of any provisions;
(b) Contingent liabilities arising in the normal course of business, and those contingent liabilities which would arise from the drawing down in full of undrawn advised facilities (whether revocable or irrevocable, conditional or unconditional) which the bank has committed itself to provide. In the case of undrawn L/C or similar facilities, the advised limit must be included in the measure of exposure;
(c) Holdings of equity capital, bonds, bills or other financial instruments. In the case of equity exposures, the current fair value as shown in the books of the bank should be included in the measure of exposure.
(d) Other assets which constitute a claim for the bank and which are not included in (a), (b) or (c) above.
October 07