CA-5.3.22
Following the comprehensive approach, the effective loss given default (LGD*) applicable to a collateralised transaction can be expressed as follows, where:
(a) LGD is that of the senior unsecured exposure before recognition of collateral (45%);
(b) E is the current value of the exposure (i.e. cash lent or securities lent or posted);
(c) E* is the exposure value after risk mitigation as determined in paragraphs CA-4.3.3 to CA-4.3.6 of the standardised approach. This concept is only used to calculate LGD*. Banks must continue to calculate EAD without taking into account the presence of any collateral, unless otherwise specified.
LGD* = LGD × (E* / E)
Apr 08