Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p25
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 67705–70589

as set out in Table 24 of Attachment G to APS 112 will apply. Where more than one transaction type is contained in the master netting agreement, a floor equal to the highest holding period will apply to the average. The notional amount of each transaction must be used in determining the weighted-average maturity;
        2.           issued and confirmed trade letters of credit and other forms of trade financing that have a maturity of less than one year and are self-liquidating; and
        3.           other short-term transactions with an original maturity of less than one year that are not part of an ADI's ongoing financing of a borrower.
    The ADI must have policies that detail the transactions where the one-day maturity floor is appropriate.

Treatment of guarantees and credit derivatives
 1.          To recognise guarantees and credit derivatives as eligible CRM, an ADI must meet the minimum requirements detailed in Attachment E to this Prudential Standard.
 2.          An ADI may recognise the risk-mitigating effect of guarantees and credit derivatives by applying either a FIRB, AIRB or retail IRB substitution approach. The ADI's application of the substitution approaches is constrained in the same manner as a direct exposure to the guarantor or credit protection provider, such that:
        1.           if the ADI applies the FIRB approach to a direct exposure to a guarantor or credit protection provider, it may only recognise the guarantee or credit derivative according to the FIRB substitution approach; and
        2.           if the ADI applies the standardised approach to credit risk to a direct exposure to a guarantor or credit protection provider, it may only recognise the guarantee or credit derivative by applying the standardised approach to the covered portion of the exposure. In this case, the ADI must apply the scope of guarantors and credit protection providers and minimum requirements for the recognition of guarantees and credit derivatives as set out in Attachments I and J to APS 112.
 3.          The application of CRM in the form of guarantees and credit derivatives must not reflect the effect of double default nor result in an adjusted risk weight that is less than that of a comparable direct exposure to the guarantor or credit protection provider.
 4.          In calculating the risk weight for the covered portion of the exposure:
        1.           the effective maturity of a corporate, sovereign or financial institution exposure must be the same as the effective maturity of the exposure as if it were not covered;
        2.           an ADI must use the same PD, LGD and EAD estimates for calculating EL as it uses for calculating RWA for UL; and
        3.           where the risk-mitigating effect of guarantees or credit derivatives is recognised through PD, the ADI must use the risk-weight function