Document ID: chunk:federal_register_of_legislation:F2023L01599:front:0:p9
Version: federal_register_of_legislation:F2023L01599
Segment Type: other
Provision Reference: 
Character Range: 22084–24950

credit risk exposure amount is the CEA for all OTC derivative transactions with a given counterparty, calculated by adding together:
(a)          the transaction-level CEA calculated under the adjusted CEM methodology in Attachment E for each transaction not covered by an eligible bilateral netting agreement; and
(b)          the CEA calculated under the adjusted CEM methodology in Attachment E for transactions covered by an eligible bilateral netting agreement that meet the criteria set out in Attachment H of APS 112;
and adjusting the sum for collateral that meets the eligibility criteria for the adjusted CEM set out in Attachment G of APS 112.

Adjustment for incurred CVA under the SA-CCR and adjusted CEM[7]
10.         For all OTC derivative transactions, the counterparty-level EAD or CEA must be adjusted for incurred CVA by subtracting the CVA amount for the counterparty that has already been recognised by the ADI as an incurred write-down (i.e. a CVA loss). The incurred CVA loss must be calculated according to the ADI's own valuation methodology and must not include any debit value adjustment (DVA).

Credit risk mitigation
11.         Forms of credit risk mitigation including guarantees and credit derivatives may be used to reduce default risk RWE. The eligibility and other requirements for application are as set out in APS 112.

Risk weighting
12.         The applicable risk weight for a counterparty credit risk exposure amount is determined according to the requirements of:
(a)          APS 113 for an IRB ADI;[8] or
(b)          APS 112 for a standardised ADI.

CVA risk capital charge
13.         An ADI must calculate its CVA risk capital charge for the risk of mark-to-market losses on the expected counterparty credit risk (CVA loss) for all bilateral OTC derivative transactions and centrally cleared transactions required to be treated as bilateral. The CVA risk capital charge is calculated using the CVA approach outlined in paragraphs 16 to 20 of this Attachment, unless the conditions under paragraph 14 of this Attachment are satisfied.
14.         An ADI, other than an ADI with either funded or unfunded default fund contributions to a CCP, may apply to APRA for approval to determine its CVA risk capital requirement according to a simplified approach, instead of the approach set out in paragraphs 16 to 20 of this Attachment. APRA may approve an application made under this paragraph.
15.         Where an ADI has obtained approval from APRA under paragraph 14 of this Attachment, the ADI must set its CVA risk capital charge equal to the amount of capital required for its risk-weighted credit exposure for counterparty credit default risk.
16.         An ADI must calculate its CVA risk capital charge, KCVA, according to one of the three following formulae:
(a)          an ADI that has OTC derivative exposure to