Document ID: chunk:federal_register_of_legislation:F2023L00690:front:0:p5
Version: federal_register_of_legislation:F2023L00690
Segment Type: other
Provision Reference: 
Character Range: 11056–13899

guaranteed. Detailed information on the eligibility of collateral and guarantees is set out in Attachment B.

Treatment of specific asset classes
    23.         Hybrid assets such as convertible notes must be split into their interest-bearing and equity/option exposures. A regulated institution must consider the changes in value of the two exposures separately for each of the asset risk stresses.
    24.         For assets of a regulated institution held under a trust or in a controlled investment entity,[3] the regulated institution may calculate the Asset Risk Charge by looking-through to the assets and liabilities of the trust. Alternatively, the investment may be treated as an equity asset (a listed equity asset if the investment is listed, or an unlisted equity asset if the investment is unlisted). Look-through must be used if the trust or controlled investment entity is both unlisted and geared.[4]
    25.         A security that is the subject of a repurchase or securities lending agreement must be treated as if it were still owned by the lender of the security. Any counterparty risk that arises from the transaction must be recognised in the default stress.
    26.         Term deposits issued by an authorised deposit-taking institution (ADI) must be treated in the same way as a corporate bond issued by the ADI. If the ADI guarantees a minimum amount on early redemption, the minimum amount may be recognised as a floor to the stressed value of the asset in each of the real interest rates and expected inflation stresses. In the credit spreads stress, the minimum amount may be recognised as a floor to the stressed value, but it must be reduced by multiplying it by (1 – default factor).

Derivatives
    27.         Derivatives include forwards, futures, swaps, options and other similar contracts. Derivatives expose a regulated institution to the full range of investment risks, even though in many cases there may be no, or only a very small, initial outlay.

    28.         Changes to the capital base that would arise from changes in the value of derivatives must be included in the risk charges arising from each of the asset risk stresses.

    29.         A risk charge must be applied to the fair value of over-the-counter derivatives in the default stress to allow for the risk of counterparty default. This is in addition to any charges that would arise from other asset risk stresses.

Extended Licence Entity
    30.         In certain circumstances, a regulated institution may choose to hold assets in a Special Purpose Vehicle (SPV) or other related entity, rather than on its own balance sheet. Detailed information on the treatment of an 'Extended Licence Entity' (ELE) is set out in Attachment C.

Real interest rate stress
    31.         This stress measures the impact on the capital