MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4611.12.31in accordance with paragraphs 23 and 25.G. Credit risk mitigation38. The treatment below applies to abank that has obtained or given a creditrisk mitigant on a securitization exposure.Credit risk mitigants include collateral,guarantees, and credit derivatives.Collateral in this context refers to that usedto hedge the credit risk of a securitizationexposure rather than the underlyingexposures of the securitizationtransaction.Collateral39. Eligible collateral is limited to thatrecognized in paragraph 34, Part III.B.Collateral pledged by SPEs may berecognized.Guarantees and credit derivatives40. Credit protection provided by theentities listed in paragraph 47, Part III.Bmay be recognized. SPEs cannot berecognized as eligible guarantors.41.Where guarantees or creditderivatives fulfill the minimum operationalrequirements as specified in Part III.B andPart IV, respectively, banks can takeaccount of such credit protection incalculating capital requirements forsecuritization exposures.42.Capital requirements for thecollateralized or guaranteed/protectedportion will be calculated according toPart III.B and Part IV.43. A bank other than the originatorproviding credit protection to asecuritization exposure must calculate acapital requirement on the coveredexposure as if it were an investor in thatsecuritization. A bank providingprotection to an unrated creditenhancement must treat the creditprotection provided as if it were directlyholding the unrated credit enhancement.Maturity mismatches44.For the purpose of settingregulatory capital against a maturitymismatch, the capital requirement willbe determined in accordance withparagraphs 50 to 54, Part III.B, exceptfor synthetic securitizations which willbe determined in accordance withparagraph 16.Part VI. Market risk-weighted assets1. Market risk is defined as the riskof losses in on- and off-balance sheetpositions arising from movements inmarket prices. The risks addressed in theseguidelines are:a) The risks pertaining to interest raterelatedinstruments and equities in thetrading book; andb) Foreign exchange risk throughoutthe bank.A. Definition of the trading book2. A trading book consists ofpositions in financial instruments heldeither with trading intent or in order tohedge other elements of the tradingbook. To be eligible for trading bookcapital treatment, financial instrumentsmust either be free of any restrictivecovenants on their tradability or ableto be hedged completely. In addition,positions should be frequently andaccurately valued, and the portfolioshould be actively managed.3. A financial instrument is anycontract that gives rise to both afinancial asset of one entity and afinancial liability or equity instrumentof another entity. Financial instrumentsinclude both primary financialinstruments (or cash instruments) andQ RegulationsAppendix Q-46 - Page 34Manual of Regulations for Non-Bank Financial Institutions