Credit Conversion Factor: Difference between revisions
From ACT Wiki
Jump to navigationJump to search
imported>Doug Williamson (Create the page. Sources: linked pages.) |
imported>Doug Williamson (Remove surplus text.) |
||
| (6 intermediate revisions by the same user not shown) | |||
| Line 1: | Line 1: | ||
''Bank supervision - capital adequacy'' | ''Bank supervision - capital adequacy - off balance sheet risk.'' | ||
(CCF). | (CCF). | ||
| Line 11: | Line 11: | ||
By multiplying the CCF with the value of the guarantee or other off balance sheet exposure, you get the expected value of the credit exposure. | By multiplying the CCF with the value of the guarantee or other off balance sheet exposure, you get the expected value of the credit exposure. | ||
Sometimes abbreviated to ''conversion factor'' (CF). | |||
:<span style="color:#4B0082">'''''What is changing?'''''</span> | |||
:"One key change which will impact corporates is the conversion factor (CF) associated with performance guarantees (incl. bid bond, advance, performance & retention guarantees). | |||
:The proposal is to increase this from 20% CF to 50% CF. | |||
:The CF defines the probability that a contingent liability exposure (such as a performance guarantee) will convert to an on balance sheet item for the bank... | |||
:The capital that the bank is required to keep for performance guarantees is linearly proportional to the CF and it is likely that banks will need to pass on this additional capital charge. | |||
:For example, for a corporate with an external S&P rating of ‘A’, if the existing pricing for such a performance guarantee was 0.4%, this would increase to 1%." | |||
:''Naresh Aggarwal, Associate Director, Policy & Technical, ACT - February 2023.'' | |||
==See also== | ==See also== | ||
*[[Bank supervision]] | |||
*[[Basel 3.1]] | |||
* [[Beneficiary]] | |||
* [[Bid bond]] | |||
* [[Capital]] | |||
*[[Capital adequacy]] | *[[Capital adequacy]] | ||
*[[Guarantee]] | * [[Contingent liabilities]] | ||
* [[Contingent risk]] | |||
* [[Corporate]] | |||
* [[Credit]] | |||
* [[Credit rating]] | |||
* [[Guarantee]] | |||
* [[Obligor]] | |||
*[[Off balance sheet risk]] | *[[Off balance sheet risk]] | ||
*[[Risk Weighted Assets]] | * [[Performance guarantee]] | ||
* [[Prudential Regulation Authority]] | |||
* [[Retention bond]] | |||
*[[Risk Weighted Assets]] (RWAs) | |||
* [[Standard & Poor's]] (S&P) | |||
[[Category:Compliance_and_audit]] | |||
[[Category:Financial_risk_management]] | |||
Latest revision as of 22:22, 1 March 2023
Bank supervision - capital adequacy - off balance sheet risk.
(CCF).
The CCF converts an off balance sheet exposure to its credit exposure (Risk Weighted Assets) equivalent.
Off balance sheet exposures - like a guarantee - have a probability of becoming a credit exposure and shifting onto the balance sheet, for example if the guarantee is called.
The CCF is an estimate of this probability.
By multiplying the CCF with the value of the guarantee or other off balance sheet exposure, you get the expected value of the credit exposure.
Sometimes abbreviated to conversion factor (CF).
- What is changing?
- "One key change which will impact corporates is the conversion factor (CF) associated with performance guarantees (incl. bid bond, advance, performance & retention guarantees).
- The proposal is to increase this from 20% CF to 50% CF.
- The CF defines the probability that a contingent liability exposure (such as a performance guarantee) will convert to an on balance sheet item for the bank...
- The capital that the bank is required to keep for performance guarantees is linearly proportional to the CF and it is likely that banks will need to pass on this additional capital charge.
- For example, for a corporate with an external S&P rating of ‘A’, if the existing pricing for such a performance guarantee was 0.4%, this would increase to 1%."
- Naresh Aggarwal, Associate Director, Policy & Technical, ACT - February 2023.
See also
- Bank supervision
- Basel 3.1
- Beneficiary
- Bid bond
- Capital
- Capital adequacy
- Contingent liabilities
- Contingent risk
- Corporate
- Credit
- Credit rating
- Guarantee
- Obligor
- Off balance sheet risk
- Performance guarantee
- Prudential Regulation Authority
- Retention bond
- Risk Weighted Assets (RWAs)
- Standard & Poor's (S&P)
