Document ID: chunk:federal_register_of_legislation:F2022L01577:body:0:p4
Version: federal_register_of_legislation:F2022L01577
Segment Type: other
Provision Reference: 
Character Range: 8606–11650

An ADI is expected to consider how the risks arising from these types of exposures are incorporated into its risk management framework under CPS 220, including establishing internal limits and triggers commensurate with its risk appetite.

Identifying large exposures
15.         An exposure to an individual counterparty or a group of connected counterparties is the aggregate of all claims, commitments and contingent liabilities arising from on- and off-balance sheet transactions (in both the banking and trading books) with the individual counterparty or group of connected counterparties and is measured in accordance with paragraphs 32 to 33 of this Prudential Standard.
16.         A large exposure is an exposure to an individual counterparty or a group of connected counterparties (defined in paragraphs 20 to 29 of this Prudential Standard) that is greater than, or equal to, 10 per cent of an ADI's Tier 1 Capital at either Level 1 or Level 2.[1]
17.         A large exposure is one form of exposure that contributes to an ADI's risk concentrations. Exposures to other sources of risk concentrations (e.g. commodities, currencies, sectors, geographies, funding sources) are not subject to the large exposure requirements in paragraphs 18 to 38 of this Prudential Standard.
18.         A large exposure excludes:
(a)          exposures deducted from an ADI's Regulatory Capital (in accordance with Prudential Standard APS 111 Capital Adequacy: Measurement of Capital (APS 111));[2]
(b)          exposures to the extent that they have been written off;
(c)          exposures to the Australian Government or any Australian dollar exposure to the RBA;
(d)          exposures to governments or central banks that are held as high-quality liquid assets under Prudential Standard APS 210 Liquidity (APS 210);
(e)          exposures to governments or central banks which arise from the decomposition of derivatives into positions in accordance with Attachment B of Prudential Standard APS 116 Capital Adequacy: Market Risk (APS 116) that do not reflect a credit exposure to the government or central bank;
(f)           intra-day interbank exposures;
(g)          exposures arising in the course of settlement of market-related contracts unless the transaction remains unsettled after its delivery due date in which case the exposure value is the positive current exposure amount;
(h)          exposures to qualifying central counterparties (QCCPs) relating to clearing activities (where QCCPs are defined in Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk (APS 180);
(i)            exposures to LMI arising from insured mortgages;[3] and
(j)            exposures to an ADI required as part of an industry support contract relating to liquidity that has been certified by APRA under section 11CB of the Banking Act.
19.         Where an exposure that has been excluded is hedged by a credit derivative, an ADI must recognise an exposure to the counterparty providing the credit protection in line with paragraph 5 of