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Part III Investment Banking, 17 Counterparty Credit Risk for Derivatives, Securities Financing, and Long Settlement Exposures

From: International Regulation of Banking: Capital and Risk Requirements (2nd Edition)

Simon Gleeson

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From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.date: 25 September 2020

Credit risk — Credit derivatives — Securities — Basel 3 — UK Financial Services Authority (FSA) — Netting
17.01 The effect of the rules set out in this chapter is that certain exposures whose value can fluctuate over time should be treated as having a greater degree of risk than their actual mark to market value. In order to explain why this is, consider a bank which owns 100 of shares in A, but also has a derivative in place with X under which it is entitled to be paid the value of 100 shares in A. Clearly both positions give rise to the same risk as to the future price of A, and both will be valued by reference to the value of the shares in A. There is, however, a...
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