Document ID: chunk:federal_register_of_legislation:F2024L01073:reg:4:p8
Version: federal_register_of_legislation:F2024L01073
Segment Type: reg
Provision Reference: reg 4 (pt 8/21)
Character Range: 96949–100077

in each currency fx different from the settlement currency
    Hfx  is the haircut appropriate for currency mismatch of currency fx.

Attachment H – Netting
 1.              An ADI may reduce its exposure amount, for the purpose of calculating its Regulatory Capital requirement, through the application of close-out netting or netting by novation, in accordance with the requirements set out in this Attachment.
 1.              An ADI that chooses to net transactions must do so on a consistent basis, and must apply netting to all transactions in both the banking book and trading book that are covered by a netting agreement.
 2.              An ADI that applies netting for Regulatory Capital purposes must have a netting policy that, at a minimum, addresses the requirements in this Prudential Standard. The netting policy must apply to all transactions subject to netting and include systems and controls for:
         1.           monitoring and reporting netted transactions on a gross and net basis; and
         2.           monitoring and managing roll-off risk and termination risk.
 3.              An ADI must maintain adequate records to support the application of the netting agreement.

Use of netting
 1.              For Regulatory Capital purposes, an ADI may only net the following types of transactions:
         1.           on-balance sheet loans and deposits;
         2.           SFTs; and
         3.           OTC derivative transactions (across both the banking and trading books) with a single counterparty. This may include netting across different types of derivatives, but not across derivatives and SFTs.
 2.              An ADI may only net internal transactions between the banking book and trading book if:
         1.           the netted transactions are marked-to-market daily, where applicable;[27] and
         2.           any collateralised instruments used in the transactions comply with the criteria for eligible collateral in the banking book as detailed in Attachment G to this Prudential Standard.

On-balance sheet netting
 1.              An ADI may only use the net exposures of loans and deposits as the basis for its RWA calculation where it:
         1.           has a well-founded basis for concluding that the netting or offsetting agreement is legally enforceable in each relevant jurisdiction regardless of whether the counterparty is insolvent or bankrupt;
         2.           is able at any time to determine those loans and deposits with the same counterparty that are subject to the netting agreement, and the deposits meet the criteria for eligible financial collateral;
         3.           monitors and controls its roll-off risks; and
         4.           monitors and controls the exposures on a net basis.
 2.              Where all of the conditions in paragraph 7 of this Attachment are satisfied, an ADI may net loans and deposits to calculate RWA by applying the relevant requirements under either the simple or comprehensive approach as set out in Attachment G to this Prudential Standard. For this purpose, loans must be treated as exposures and