This chapter describes counterparty credit risk and credit valuation adjustment disclosure requirements.

Effective as of: 15 Dec 2019 | Last update: 15 Dec 2019
Status: Current (View changes)
A new version will be effective as of 01 Jan 2022 | View future version

Introduction

42.1

DIS42 includes all exposures in the banking book and trading book that are subject to a counterparty credit risk (CCR) charge, including the credit valuation adjustment (CVA) capital charge and charges applied to exposures to central counterparties (CCPs).1

1 Footnote
42.2

The disclosure requirements under DIS42 are:

(1)

Table CCRA – Qualitative disclosure related to CCR

(2)

Template CCR1 – Analysis of CCR exposures by approach

(3)

Template CCR2 – CVA capital charge

(4)

Template CCR3 – Standardised approach – CCR exposures by regulatory portfolio and risk weights

(5)

Template CCR4 – Internal ratings-based (IRB) approach – CCR exposures by portfolio and probability-of-default (PD) scale

(6)

Template CCR5 – Composition of collateral for CCR exposures

(7)

Template CCR6 – Credit derivatives exposures

(8)

Template CCR7 – RWA flow statements of CCR exposures under the internal models method (IMM)

(9)

Template CCR8 – Exposures to central counterparties

2 FAQs

Table CCRA: Qualitative disclosure related to CCR

Purpose: Describe the main characteristics of counterparty credit risk management (eg operating limits, use of guarantees and other credit risk mitigation (CRM) techniques, impacts of own credit downgrading).

Scope of application: The table is mandatory for all banks.

Content: Qualitative information.

Frequency: Annual.

Format: Flexible.

Banks must provide risk management objectives and policies related to counterparty credit risk, including:

(a)

The method used to assign the operating limits defined in terms of internal capital for counterparty credit exposures and for CCP exposures;

(b)

Policies relating to guarantees and other risk mitigants and assessments concerning counterparty risk, including exposures towards CCPs;

(c)

Policies with respect to wrong-way risk exposures;

(d)

The impact in terms of the amount of collateral that the bank would be required to provide given a credit rating downgrade.

   

Template CCR1: Analysis of CCR exposures by approach

Purpose: Provide a comprehensive view of the methods used to calculate counterparty credit risk regulatory requirements and the main parameters used within each method.

 

Scope of application: The template is mandatory for all banks.

 

Content: Regulatory exposures, RWA and parameters used for RWA calculations for all exposures subject to the counterparty credit risk framework (excluding CVA charges or exposures cleared through a CCP).

 

Frequency: Semiannual.

 

Format: Fixed.

 

Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.

 
                 
   

a

b

c

d

e

f

   

Replacement cost

Potential future exposure

Effective EPE

Alpha used for computing regulatory EAD

EAD post-CRM

RWA

1

SA-CCR (for derivatives)

     

1.4

   

2

Internal models method (for derivatives and securities financing transactions, or SFTs)

           

3

Simple Approach for credit risk mitigation (for SFTs)

           

4

Comprehensive Approach for credit risk mitigation (for SFTs)

           

5

Value-at-risk (VaR) for SFTs

           

6

Total

           

Definitions

SA-CCR (for derivatives): Banks in jurisdictions which have yet to implement the SA-CCR should report in row 1 information corresponding to the Current Exposures Method and the Standardised Method

Replacement Cost (RC): For trades that are not subject to margining requirements, the RC is the loss that would occur if a counterparty were to default and was closed out of its transactions immediately. For margined trades, it is the loss that would occur if a counterparty were to default at present or at a future date, assuming that the closeout and replacement of transactions occur instantaneously. However, closeout of a trade upon a counterparty default may not be instantaneous. The replacement cost under the standardised approach for measuring counterparty credit risk exposures is described in CRE52.

Potential Future Exposure is any potential increase in exposure between the present and up to the end of the margin period of risk. The potential future exposure for the standardised approach is described in CRE50.

Effective Expected Positive Exposure (EPE) is the weighted average over time of the effective expected exposure over the first year, or, if all the contracts in the netting set mature before one year, over the time period of the longest-maturity contract in the netting set where the weights are the proportion that an individual expected exposure represents of the entire time interval (see CRE50).

EAD post-CRM: exposure at default. This refers to the amount relevant for the capital requirements calculation having applied CRM techniques, credit valuation adjustments according to CRE51.11 and specific wrong-way adjustments (see CRE53).

                 

Template CCR2: Credit valuation adjustment (CVA) capital charge

Purpose: Provide the CVA regulatory calculations (with a breakdown by standardised and advanced approaches).

Scope of application: The template is mandatory for all banks with exposures subject to CVA capital charges.

Content: Risk-weighted assets and corresponding exposures at default.

Frequency: Semiannual.

Format: Fixed

Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.

   

a

b

   

EAD post-CRM

RWA

 
 

Total portfolios subject to the Advanced CVA capital charge

   

1

(i) VaR component (including the 3×multiplier)

   

2

(ii) Stressed VaR component (including the 3×multiplier)

   

3

All portfolios subject to the Standardised CVA capital charge

   

4

Total subject to the CVA capital charge

   

Definitions

Advanced CVA capital charge: the amount of the advanced capital charge calculated according to MAR50.

Standardised CVA capital charge: the amount of the standardised capital charge calculated according to MAR50 or with the definition provided in domestic regulation if use of external credit ratings is not permitted.

EAD post-CRM: exposure at default. This refers to the amount used for the capital requirements calculation. It is therefore the amount of the credit valuation adjustments according to CRE51.11 and of the specific wrong-way adjustments (see CRE53), having applied CRM techniques.

       

Template CCR3: Standardised approach - CCR exposures by regulatory portfolio and risk weights

 

Purpose: Provide a breakdown of counterparty credit risk exposures calculated according to the standardised approach: by portfolio (type of counterparties) and by risk weight (riskiness attributed according to standardised approach).

 

Scope of application: The template is mandatory for all banks using the credit risk standardised approach to compute RWA for counterparty credit risk exposures, irrespective of the CCR approach used to determine exposure at default.

If a bank deems that the information requested in this template is not meaningful to users because the exposures and RWA amounts are negligible, the bank may choose not to disclose the template. The bank is, however, required to explain in a narrative commentary why it considers the information not to be meaningful to users, including a description of the exposures in the portfolios concerned and the aggregate total of RWA amount from such exposures.

 

Content: Credit exposure amounts.

 

Frequency: Semiannual.

 

Format: Fixed.

(The rows and columns may be amended at jurisdiction level to reflect different exposure categories required as a consequence of the local implementation of the standardised approach.)

 

Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.

   

a

b

c

d

e

f

g

h

i

 

Risk weight*,**→

Regulatory portfolio*↓

0%

10%

20%

50%

75%

100%

150%

Others

Total credit exposure

 

Sovereigns

                 
 

Non-central government public sector entities

                 
 

Multilateral development banks

                 
 

Banks

                 
 

Securities firms

                 
 

Corporates

                 
 

Regulatory retail portfolios

                 
 

Other assets

 

 

 

   

 

 

 

 

 

Total

 

 

 

   

 

 

 

 

*The breakdown by risk weight and regulatory portfolio included in the template is for illustrative purposes. Banks may complete the template with the breakdown of asset classes according to the local implementation of the Basel framework.

**Banks subject to the simplified standardised approach should indicate risk weights determined by the supervisory authority in the columns.

Total credit exposure: the amount relevant for the capital requirements calculation, having applied CRM techniques.

Other assets: the amount excludes exposures to CCPs, which are reported in Template CCR8.

 
                       

Template CCR4: IRB - CCR exposures by portfolio and PD scale

Purpose: Provide all relevant parameters used for the calculation of counterparty credit risk capital requirements for IRB models.

Scope of application: The template is mandatory for banks using an advanced IRB (A-IRB) or foundation IRB (F-IRB) approach to compute RWA for counterparty credit risk exposures, whatever CCR approach is used to determine exposure at default. Where a bank makes use of an FIRB approach for certain exposures and an AIRB approach for others, it must disclose two separate sets of portfolio breakdown in two separate templates.

To provide meaningful information, the bank must include in this template the key models used at the group-wide level (according to the scope of regulatory consolidation) and explain how the scope of models described in this template was determined. The commentary must include the percentage of RWAs covered by the models shown here for each of the bank's regulatory portfolios.

Content: RWA and parameters used in RWA calculations for exposures subject to the counterparty credit risk framework (excluding CVA charges or exposures cleared through a CCP) and where the credit risk approach used to compute RWA is an IRB approach.

Frequency: Semiannual.

Format: Fixed. Columns and PD scales in the rows are fixed. However, the portfolio breakdown shown in the rows will be set by each jurisdiction to reflect the exposure categories required under local implementations of IRB approaches.

Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.

   

a

b

c

d

e

f

g

 

PD scale

EAD post-CRM

average PD

Number of obligors

Average LGD

Average maturity

RWA

RWA density

Portfolio X

               
 

0.00 to <0.15

             
 

0.15 to <0.25

             
 

0.25 to <0.50

             
 

0.50 to <0.75

             
 

0.75 to <2.50

             
 

2.50 to <10.00

             
 

10.00 to <100.00

             
 

100.00 (Default)

             
 

Sub-total

             

Total (sum of portfolios)

             

Definitions

Rows

Portfolio X refers to the following prudential portfolios for the foundation IRB (F-IRB) approach: (i) Sovereign; (ii) Banks; (iii) Corporate; and the following prudential portfolios for the advanced IRB (A-IRB) approach: (i) Sovereign; (ii) Banks; (iii) Corporate. The information on F-IRB and A-IRB portfolios must be reported in separate templates.

Default: The data on defaulted exposures may be further broken down according to a jurisdiction's definitions for categories of defaulted exposures.

Columns

PD scale: Exposures shall be broken down according to the PD scale used in the template instead of the PD scale used by banks in their RWA calculation. Banks must map the PD scale they use in the RWA calculations to the PD scale provided in the template;

EAD post-CRM: exposure at default. The amount relevant for the capital requirements calculation, having applied the CCR approach and CRM techniques, but gross of accounting provisions;

Number of obligors: corresponds to the number of individual PDs in this band. Approximation (round number) is acceptable;

Average PD: obligor grade PD weighted by EAD;

Average loss-given-default (LGD): the obligor grade LGD weighted by EAD. The LGD must be net of any CRM effect;

Average maturity: the obligor maturity weighted by EAD;

RWA density: Total RWA to EAD post-CRM.

                 

Template CCR5: Composition of collateral for CCR exposure

Purpose: Provide a breakdown of all types of collateral posted or received by banks to support or reduce the counterparty credit risk exposures related to derivative transactions or to SFTs, including transactions cleared through a CCP.

Scope of application: The template is mandatory for all banks.

Content: Carrying values of collateral used in derivative transactions or SFTs, whether or not the transactions are cleared through a CCP and whether or not the collateral is posted to a CCP.

Please refer to DIS 99.2 for an illustration on how the template should be completed.

Frequency: Semiannual.

Format: Flexible (the columns cannot be altered but the rows are flexible).

Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.

             
 

a

b

c

d

e

f

 

Collateral used in derivative transactions

Collateral used in SFTs

 

Fair value of collateral received

Fair value of posted collateral

Fair value of collateral received

Fair value of posted collateral

Segregated

Unsegregated

Segregated

Unsegregated

Cash - domestic currency

           

Cash - other currencies

           

Domestic sovereign debt

           

Other sovereign debt

           

Government agency debt

           

Corporate bonds

           

Equity securities

           

Other collateral

           

Total

           

Definitions

Collateral used is defined as referring to both legs of the transaction. Example: a bank transfers securities to a third party, and the third party in turn posts collateral to the bank. The bank reports both legs of the transaction. The collateral received is reported in column (e), while the collateral posted by the bank is reported in column (f). The fair value of collateral received or posted must be after any haircut. This means the value of collateral received will be reduced by the haircut (ie C(1 - Hs)) and collateral posted will be increased after the haircut (ie E(1 + Hs)).

Segregated refers to collateral which is held in a bankruptcy-remote manner according to the description included in CRE54.18 to CRE54.23.

Unsegregated refers to collateral that is not held in a bankruptcy-remote manner.

Domestic sovereign debt refers to the sovereign debt of the jurisdiction of incorporation of the bank, or, when disclosures are made on a consolidated basis, the jurisdiction of incorporation of the parent company.

Domestic currency refers to items of collateral that are denominated in the bank's (consolidated) reporting currency and not the transaction currency.

             

Template CCR6: Credit derivatives exposures

Purpose: Illustrate the extent of a bank's exposures to credit derivative transactions broken down between derivatives bought or sold.

Scope of application: This template is mandatory for all banks.

Content: Notional derivative amounts (before any netting) and fair values.

Frequency: Semiannual.

Format: Flexible (the columns are fixed but the rows are flexible).

Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.

     
 

a

b

 

Protection bought

Protection sold

Notionals

   

Single-name credit default swaps

   

Index credit default swaps

   

Total return swaps

   

Credit options

   

Other credit derivatives

   

Total notionals

   

Fair values

   

Positive fair value (asset)

   

Negative fair value (liability)

   
     

Template CCR7: RWA flow statements of CCR exposures under the internal models method (IMM)

Purpose: Present a flow statement explaining changes in counterparty credit risk RWA determined under the Internal Model Method for counterparty credit risk (derivatives and SFTs).

Scope of application: The template is mandatory for all banks using the IMM for measuring exposure at default of exposures subject to the counterparty credit risk framework, irrespective of the credit risk approach used to compute RWA from exposures at default.

Content: Risk-weighted assets corresponding to counterparty credit risk (credit risk shown in CR8 is excluded). Changes in RWA amounts over the reporting period for each of the key drivers should be based on a bank's reasonable estimation of the figure.

Frequency: Quarterly.

Format: Fixed. Columns and rows 1 and 9 are fixed. Banks may add additional rows between rows 7 and 8 to disclose additional elements that contribute to RWA variations.

Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant change over the reporting period and the key drivers of such changes.

     
   

a

   

Amounts

1

RWA as at end of previous reporting period

 

2

Asset size

 

3

Credit quality of counterparties

 

4

Model updates (IMM only)

 

5

Methodology and policy (IMM only)

 

6

Acquisitions and disposals

 

7

Foreign exchange movements

 

8

Other

 

9

RWA as at end of current reporting period

 

Asset size: organic changes in book size and composition (including origination of new businesses and maturing exposures) but excluding changes in book size due to acquisitions and disposal of entities.

Credit quality of counterparties: changes in the assessed quality of the bank's counterparties as measured under the credit risk framework, whatever approach the bank uses. This row also includes potential changes due to IRB models when the bank uses an IRB approach.

Model updates: changes due to model implementation, changes in model scope, or any changes intended to address model weaknesses. This row addresses only changes in the IMM model.

Methodology and policy: changes due to methodological changes in calculations driven by regulatory policy changes, such as new regulations (only in the IMM model).

Acquisitions and disposals: changes in book sizes due to acquisitions and disposal of entities.

Foreign exchange movements: changes driven by changes in foreign exchange rates.

Other: this category is intended to be used to capture changes that cannot be attributed to the above categories. Banks should add additional rows between rows 7 and 8 to disclose other material drivers of RWA movements over the reporting period.

     

Template CCR8: Exposures to central counterparties

 

Purpose: Provide a comprehensive picture of the bank's exposures to central counterparties. In particular, the template includes all types of exposures (due to operations, margins, contributions to default funds) and related capital requirements.

 

Scope of application: The template is mandatory for all banks.

 

Content: Exposures at default and risk-weighted assets corresponding to exposures to central counterparties.

 

Frequency: Semiannual.

 

Format: Fixed. Banks are requested to provide a breakdown of the exposures by central counterparties (qualifying, as defined below, or not qualifying).

 

Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.

   

a

b

   
   

EAD (post-CRM)

RWA

   

1

Exposures to qualifying CCPs (QCCPs) (total)

       

2

Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which

       

3

(i) over-the-counter (OTC) derivatives

       

4

(ii) Exchange-traded derivatives

       

5

(iii) Securities financing transactions

       

6

(iv) Netting sets where cross-product netting has been approved

       

7

Segregated initial margin

       

8

Non-segregated initial margin

       

9

Pre-funded default fund contributions

       

10

Unfunded default fund contributions

       

11

Exposures to non-QCCPs (total)

       

12

Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which

       

13

(i) OTC derivatives

       

14

(ii) Exchange-traded derivatives

       

15

(iii) Securities financing transactions

       

16

(iv) Netting sets where cross-product netting has been approved

       

17

Segregated initial margin

       

18

Non-segregated initial margin

       

19

Pre-funded default fund contributions

       

20

Unfunded default fund contributions

       

Definitions

Exposures to central counterparties: This includes any trades where the economic effect is equivalent to having a trade with the CCP (eg a direct clearing member acting as an agent or a principal in a client-cleared trade). These trades are described in CRE54.7 to CRE54.23.

EAD post-CRM: exposure at default. The amount relevant for the capital requirements calculation, having applied CRM techniques, credit valuation adjustments according to CRE51.11 and specific wrong-way adjustments (see CRE53).

A qualifying central counterparty (QCCP) is an entity that is licensed to operate as a CCP (including a licence granted by way of confirming an exemption), and is permitted by the appropriate regulator/overseer to operate as such with respect to the products offered. This is subject to the provision that the CCP is based and prudentially supervised in a jurisdiction where the relevant regulator/overseer has established, and publicly indicated, that it applies to the CCP on an ongoing basis, domestic rules and regulations that are consistent with the Committee on Payments and Market Infrastructures and International Organization of Securities Commissions' Principles for Financial Market Infrastructures. See CRE54 for the comprehensive definition and associated criteria.

Initial margin means a clearing member's or client's funded collateral posted to the CCP to mitigate the potential future credit exposure of the CCP to the clearing member arising from the possible future change in the value of their transactions. For the purposes of this template, initial margin does not include contributions to a CCP for mutualised loss-sharing arrangements (ie in cases where a CCP uses initial margin to mutualise losses among the clearing members, it will be treated as a default fund exposure).

Prefunded default fund contributions are prefunded clearing member contributions towards, or underwriting of, a CCP's mutualised loss-sharing arrangements.

Unfunded default fund contributions are unfunded clearing member contributions towards, or underwriting of, a CCP's mutualised loss-sharing arrangements. If a bank is not a clearing member but a client of a clearing member, it should include its exposures to unfunded default fund contributions if applicable. Otherwise, banks should leave this row empty and explain the reason in the accompanying narrative.

Segregated refers to collateral which is held in a bankruptcy-remote manner according to the description included in CRE54.18 to CRE54.23.

Unsegregated refers to collateral that is not held in a bankruptcy-remote manner.