BCBS Presentation by RMMG Sept 20+21 Singapore sept17.pptVIP

5. Central Counterparties Example - Risk sensitive DF capital: Using aggregate CCP survey results as hypothetical CCP CCP exposures Total EAD using CEM = $444B Reduce exposures by IM/collateral Total initial margin = $229B Residual EAD = $444B - $229B = $215B Hypothetical KCCP KCCP = $215B * 20% * 8% = $3.4B Based on standard approach risk weights Apply CCP waterfall (assume not complex) CCP own DF contributions of $1.1B DF members bear Kccp (capital) risk of $2.3B Remaining $11.5B of DF contributions require small capital Apportion KCCP (assume 900 members) If 900 with equal DF liability, $2.5M per member capital risk RMMG Progress Report to BCBS Counterparty Credit RiskSingapore Sept 20-21, 2010 Mark E. White, Assistant Superintendent - Regulation, OSFI - Chair of the Risk Management and Modelling Group, BCBS Agenda EAD and EEPE improvements Specific wrong-way risk (WWR) recoveries Stressed EEPE calibration CVA Capital Charge Advanced (improved Bond Equivalent Approach) vs. standardised approach Calibration - Market Stress CVA charge Standardised CVA charge Deduct CVA losses from exposure Asset Value Correlations (AVC) Margining collateral management Central Counterparties (CCPs) Risk sensitive capitalization for Default Fund exposure PDG supported RMMG recommendations - 2 - 1. EAD and EEPE Improvements Specific WWR Background: No reduction in exposure due to hedge with specific WWR – e.g. legally connected entities Jump-to-default risk on single name CDS = FV at risk on underlying – how much can be lost Allow banks to reflect recoveries Exposure At Default (EAD) Stressed EEPE (Effective Expected Positive Exposure) Capital based on greater of current and stressed period exposure The stress period selection should be principles based (e.g. spreads increase) - similar to the downturn period selected for LGDs The stress period should be identified at the portfolio level rather than the counterparty level - 3 - 2. CVA Capital Charge Bond Equivalen