General risk

The procedure for calculating capital requirements against general risk involves two basic steps. First, all positions shall be weighted according to maturity (as explained in point 18), in order to compute the amount of capital required against them. Second, allowance shall be made for this requirement to be reduced when a weighted position is held alongside an opposite weighted position within the same maturity band. A reduction in the requirement shall also be allowed when the opposite weighted positions fall into different maturity bands, with the size of this reduction depending both on whether the two positions fall into the same zone, or not, and on the particular zones they fall into. There are three zones (groups of maturity bands) altogether. The institution shall assign its net positions to the appropriate maturity bands in column 2 or 3, as appropriate, in Table 2 in point 20. It shall do so on the basis of residual maturity in the case of fixed-rate instruments and on the basis of the period until the interest rate is next set in the case of instruments on which the interest rate is variable before final maturity. It shall also distinguish between debt instruments with a coupon of 3 % or more and those with a coupon of less than 3 % and thus allocate them to column 2 or column 3 in Table 2. It shall then multiply each of them by the weighing for the maturity band in question in column 4 in Table 2. It shall then work out the sum of the weighted long positions and the sum of the weighted short positions in each maturity band. The amount of the former which are matched by the latter in a given maturity band shall be the matched weighted position in that band, while the residual long or short position shall be the unmatched weighted position for the same band. The total of the matched weighted positions in all bands shall then be calculated. The institution shall compute the totals of the unmatched weighted long positions for the bands included in each of the zones in Table 2 in order to derive the unmatched weighted long position for each zone. Similarly, the sum of the unmatched weighted short positions for each band in a particular zone shall be summed to compute the unmatched weighted short position for that zone. That part of the unmatched weighted long position for a given zone that is matched by the unmatched weighted short position for the same zone shall be the matched weighted position for that zone. That part of the unmatched weighted long or unmatched weighted short position for a zone that cannot be thus matched shall be the unmatched weighted position for that zone. Table 2 Zone Maturity band Weighting (in %) Assumed interest rate change (in %) Coupon of 3 % or more Coupon of less than 3 % One 0 ≤ 1 month 0 ≤ 1 month 0,00 — > 1 ≤ 3 months > 1 ≤ 3 months 0,20 1,00 > 3 ≤ 6 months > 3 ≤ 6 months 0,40 1,00 > 6 ≤ 12 months > 6 ≤ 12 months 0,70 1,00 Two > 1 ≤ 2 years > 1,0 ≤ 1,9 years 1,25 0,90 > 2 ≤ 3 years > 1,9 ≤ 2,8 years 1,75 0,80 > 3 ≤ 4 years > 2,8 ≤ 3,6 years 2,25 0,75 Three > 4 ≤ 5 years > 3,6 ≤ 4,3 years 2,75 0,75 > 5 ≤ 7 years > 4,3 ≤ 5,7 years 3,25 0,70 > 7 ≤ 10 years > 5,7 ≤ 7,3 years 3,75 0,65 > 10 ≤ 15 years > 7,3 ≤ 9,3 years 4,50 0,60 > 15 ≤ 20 years > 9,3 ≤ 10,6 years 5,25 0,60 > 20 years > 10,6 ≤ 12,0 years 6,00 0,60 > 12,0 ≤ 20,0 years 8,00 0,60 > 20 years 12,50 0,60 The amount of the unmatched weighted long (short) position in zone one which is matched by the unmatched weighted short (long) position in zone two shall then be computed. This shall be referred to in point 25 as the matched weighted position between zones one and two. The same calculation shall then be undertaken with regard to that part of the unmatched weighted position in zone two which is left over and the unmatched weighted position in zone three in order to calculate the matched weighted position between zones two and three. The institution may, if it wishes, reverse the order in point 21 so as to calculate the matched weighted position between zones two and three before calculating that position between zones one and two. The remainder of the unmatched weighted position in zone one shall then be matched with what remains of that for zone three after the latter's matching with zone two in order to derive the matched weighted position between zones one and three. Residual positions, following the three separate matching calculations in points 21, 22 and 23, shall be summed. The institution's capital requirement shall be calculated as the sum of: 10 % of the sum of the matched weighted positions in all maturity bands; 40 % of the matched weighted position in zone one; 30 % of the matched weighted position in zone two; 30 % of the matched weighted position in zone three; 40 % of the matched weighted position between zones one and two and between zones two and three (see point 21); 150 % of the matched weighted position between zones one and three; and 100 % of the residual unmatched weighted positions. The competent authorities may allow institutions in general or on an individual basis to use a system for calculating the capital requirement for the general risk on traded debt instruments which reflects duration, instead of the system set out in points 17 to 25, provided that the institution does so on a consistent basis. Under a system referred to in point 26 the institution shall take the market value of each fixed‐rate debt instrument and thence calculate its yield to maturity, which is implied discount rate for that instrument. In the case of floating‐rate instruments, the institution shall take the market value of each instrument and thence calculate its yield on the assumption that the principal is due when the interest rate can next be changed. The institution shall then calculate the modified duration of each debt instrument on the basis of the following formula: modified duration = ((duration (D))/(1 + r)), where: D = ((Σ_(t=1)^(m)((t C_(t))/((1+r)^(t))))/(Σ_(t=1)^(m)((C_(t))/((1+r)^(t))))) where: R = yield to maturity (see point 25), C_(t) = cash payment in time t, M = total maturity (see point 25). The institution shall then allocate each debt instrument to the appropriate zone in Table 3. It shall do so on the basis of the modified duration of each instrument. Table 3 Zone Modified duration (in years) Assumed interest (change in %) One > 0 ≤ 1,0 1,0 Two > 1,0 ≤ 3,6 0,85 Three > 3,6 0,7 The institution shall then calculate the duration‐weighted position for each instrument by multiplying its market price by its modified duration and by the assumed interest‐rate change for an instrument with that particular modified duration (see column 3 in Table 3). The institution shall calculate its duration-weighted long and its duration-weighted short positions within each zone. The amount of the former which are matched by the latter within each zone shall be the matched duration‐weighted position for that zone. The institution shall then calculate the unmatched duration-weighted positions for each zone. It shall then follow the procedures laid down for unmatched weighted positions in points 21 to 24. The institution's capital requirement shall then be calculated as the sum of: 2 % of the matched duration-weighted position for each zone; 40 % of the matched duration-weighted positions between zones one and two and between zones two and three; 150 % of the matched duration-weighted position between zones one and three; and 100 % of the residual unmatched duration-weighted positions.

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Source: EUR-Lex (Cellar) · retrieved 2026-10-10 · Text as adopted (Official Journal); later amendments are not incorporated in this text.