Document ID: chunk:federal_register_of_legislation:F2024L01073:reg:4:p18
Version: federal_register_of_legislation:F2024L01073
Segment Type: reg
Provision Reference: reg 4 (pt 18/21)
Character Range: 124492–127626

to the credit risk of that entity. The risk weight that must be applied to the exposure is the risk weight that would otherwise apply to the reference entity. The amount of the exposure is the maximum possible amount payable under the terms of the credit derivative contract if a credit event were to occur.

First- and second-to-default basket credit derivatives
 1.          An ADI which sells credit protection through a first-to-default or second-to-default credit derivative, must apply the following capital requirements to these exposures:
         1.           for first-to-default credit derivatives, the risk weights of the assets included in the basket must be aggregated up to a maximum of 1250 per cent and multiplied by the nominal amount of the protection provided by the credit derivative to obtain the risk-weighted asset amount; and
         2.           for second-to-default credit derivatives, the treatment is similar; however, in aggregating the risk weights, the asset with the lowest risk-weighted amount can be excluded from the calculation. This treatment applies respectively for nth-to-default credit derivatives, for which the n-assets with the lowest risk-weighted amounts can be excluded from the calculation.
[1]  Refer to subsection 11AF(2) of the Banking Act.

[2]  Prescribed New Zealand authority has the meaning given in subsection 5(1) of the Banking Act.
[3]  For APS 112 purposes, an ADI may exclude credit risk RWA that arise from securities held in the trading book when applying the prescribed New Zealand authority's equivalent prudential rules.
[4]  The valuation must be done independently from the ADI's mortgage acquisition, loan processing and loan decision process.

[5]  Where the loan is financing the purchase of property, the value of the property for LVR purposes must not be higher than the effective purchase price, except for non-arm's length transactions.

[6]  For the purpose of paragraph 3(c) of this Attachment, the following institutions may be risk-weighted at zero per cent: the Bank for International Settlements; the International Monetary Fund; the European Central Bank; the European Union; the European Stability Mechanism; the European Financial Stability Facility; the World Bank Group comprising the International Bank for Reconstruction and Development, the International Finance Corporation, the Multilateral Investment Guarantee Agency and the International Development Association; the Asian Development Bank; the African Development Bank; the European Bank for Reconstruction and Development; the Inter-American Development Bank; the European Investment Bank; the European Investment Fund; the Nordic Investment Bank; the Caribbean Development Bank; the Islamic Development Bank; the Council of Europe Development Bank; the International Finance Facility for Immunization; and the Asian Infrastructure Investment Bank.

[7]  This may include on-balance sheet exposures such as loans and off-balance sheet exposures such as self-liquidating trade-related contingent items.

[8]  For this purpose, short-term refers to an exposure with a maturity less than