Section 5

For the purpose 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. Where protection has a residual maturity of less than three months and the maturity of the protection is less than the maturity of the underlying exposure that protection does not qualify as eligible credit protection. Where there is a maturity mismatch the credit protection shall not qualify as eligible where either of the following conditions is met: the original maturity of the protection is less than 1 year; 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 Article 162(3). Subject to a maximum of five 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 paragraph 2, the maturity of the credit protection shall be the time to the earliest date at which the protection may terminate or be terminated. Where there is an option to terminate the protection which is at the discretion of the protection seller, institutions shall take the maturity of the protection 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 institution to call the transaction before contractual maturity, an institution shall take the maturity of the protection to be the time to the earliest date at which that option may be exercised; otherwise the institution may consider that such an option does not affect the maturity of the protection. 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 institutions shall reduce the maturity of the protection by the length of the grace period. For transactions subject to funded credit protection under the Financial Collateral Simple Method, where there is a mismatch between the maturity of the exposure and the maturity of the protection, the collateral does not qualify as eligible funded credit protection. For transactions subject to funded credit protection under the Financial Collateral Comprehensive Method, institutions shall reflect the maturity of the credit protection and of the exposure in the adjusted value of the collateral according to the following formula: C_(VAM) = C_(VA) · (t – t^(*) / T – t^(*)) where: C_(VA)= the volatility adjusted value of the collateral as specified in Article 223(2) or the amount of the exposure, whichever is lower; t= the number of years remaining to the maturity date of the credit protection calculated in accordance with Article 238, or the value of T, whichever is lower; T= the number of years remaining to the maturity date of the exposure calculated in accordance with Article 238, or five years, whichever is lower; t*= 0,25. Institutions shall use C_(VAM) as C_(VA) further adjusted for maturity mismatch in the formula for the calculation of the fully adjusted value of the exposure (E*) set out in Article 223(5). For transactions subject to unfunded credit protection, institutions shall reflect the maturity of the credit protection and of the exposure in the adjusted value of the credit protection according to the following formula: G_(A) = G^(*) · (t – t^(*) / T – t^(*)) where: G_(A)= G* adjusted for any maturity mismatch; G*= the amount of the protection adjusted for any currency mismatch; t= is the number of years remaining to the maturity date of the credit protection calculated in accordance with Article 238, or the value of T, whichever is lower; T= is the number of years remaining to the maturity date of the exposure calculated in accordance with Article 238, or five years, whichever is lower; t*= 0,25. Institutions shall use G_(A) as the value of the protection for the purposes of Articles 233 to 236.

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Source: EUR-Lex (Cellar) · retrieved 2026-09-25 · Text as adopted (Official Journal); later amendments are not incorporated in this text.