BANK 4.6.26 Treatment of overlapping exposures

(1) Overlapping exposures may result if a banking business firm provides 2 or more facilities (such as liquidity facilities and credit enhancements) in relation to a securitisation that can be drawn under various conditions with different triggers. In effect, the firm provides duplicate cover to the underlying exposures.
(2) For the purposes of calculating its capital requirements, a banking business firm's exposure (exposure A) overlaps another exposure (exposure B) if in all circumstances the firm will preclude any loss to it on exposure B by fulfilling its obligations with respect to exposure A.

Example

If, under exposure A, a firm provides full credit support to some notes while simultaneously holding as exposure B a portion of those notes, its full credit support obligation precludes any loss from its exposure from its holding of the notes. If the firm can satisfactorily show that fulfilling its obligations with respect to exposure A will preclude a loss from its exposure B under any circumstance, there are overlapping exposures between the 2 exposures and the firm need not calculate risk-weighted assets for exposure B.
(3) If a banking business firm has 2 or more overlapping exposures to a securitisation, the firm must, to the extent that the exposures overlap, include in its calculation of risk-weighted assets only the exposure, or portion of the exposure, producing the higher or highest risk-weighted assets amount.
(4) If the overlapping exposures are subject to different credit conversion factors, the firm must apply the higher or highest factor to the exposures.
Inserted by QFCRA RM/2017-2 (as from 1st April 2017).