Directive 2006/48/EC of the European Parliament and of the council (repealed)Show full title

PART 4 Maturity Mismatches

1. For the purposes of calculating risk‐weighted exposure amounts, a maturity mismatch occurs when the residual maturity of the credit protection is less than that of the protected exposure. Protection of less than three months residual maturity, the maturity of which is less than the maturity of the underlying exposure, shall not be recognised.

2. Where there is a maturity mismatch the credit protection shall not be recognised where:

(a)

the original maturity of the protection is less than 1 year; or

(b)

the exposure is a short term exposure specified by the competent authorities as being subject to a one–day floor rather than a one-year floor in respect of the maturity value (M) under Annex VII, Part 2, point 14.

1. DEFINITION OF MATURITY

3. Subject to a maximum of 5 years, the effective maturity of the underlying shall be the longest possible remaining time before the obligor is scheduled to fulfil its obligations. Subject to point 4, the maturity of the credit protection shall be the time to the earliest date at which the protection may terminate or be terminated.

4. Where there is an option to terminate the protection which is at the discretion of the protection seller, the maturity of the protection shall be taken to be the time to the earliest date at which that option may be exercised. Where there is an option to terminate the protection which is at the discretion of the protection buyer and the terms of the arrangement at origination of the protection contain a positive incentive for the credit institution to call the transaction before contractual maturity, the maturity of the protection shall be taken to be the time to the earliest date at which that option may be exercised; otherwise such an option may be considered not to affect the maturity of the protection.

5. Where a credit derivative is not prevented from terminating prior to expiration of any grace period required for a default on the underlying obligation to occur as a result of a failure to pay the maturity of the protection shall be reduced by the amount of the grace period.

2. VALUATION OF PROTECTION

2.1. Transactions subject to funded credit protection — Financial Collateral Simple Method

6. Where there is a mismatch between the maturity of the exposure and the maturity of the protection, the collateral shall not be recognised.

2.2. Transactions subject to funded credit protection — Financial Collateral Comprehensive Method

7. The maturity of the credit protection and that of the exposure must be reflected in the adjusted value of the collateral according to the following formula:

C_VAM = C_VA x (t-t*)/(T-t*)

where:

C_VA is the volatility adjusted value of the collateral as specified in Part 3, point 33 or the amount of the exposure, whichever is the lowest;

t is the number of years remaining to the maturity date of the credit protection calculated in accordance with points 3 to 5, or the value of T, whichever is the lower;

T is the number of years remaining to the maturity date of the exposure calculated in accordance with points 3 to 5, or 5 years, whichever is the lower; and

t* is 0,25.

C_VAM shall be taken as C_VA further adjusted for maturity mismatch to be included in the formula for the calculation of the fully adjusted value of the exposure (E*) set out at Part 3, point 33.

2.3. Transactions subject to unfunded credit protection

8. The maturity of the credit protection and that of the exposure must be reflected in the adjusted value of the credit protection according to the following formula

G_A = G* x (t-t*)/(T-t*)

where:

G* is the amount of the protection adjusted for any currency mismatch

G_A is G* adjusted for any maturity mismatch

t is the number of years remaining to the maturity date of the credit protection calculated in accordance with points 3 to 5, or the value of T, whichever is the lower;

T is the number of years remaining to the maturity date of the exposure calculated in accordance with points 3 to 5, or 5 years, whichever is the lower; and

t* is 0,25.

G_A is then taken as the value of the protection for the purposes of Part 3, points 83 to 92.