Provided that an eligible clearing agreement has been entered into bilaterally with the contractor concerned, derivatives and non-derivative transactions may be offset by remarginal transactions (most often pension and credit transactions) in accordance with the provisions of the Solvency Regulation. The accounting balance of mutual receivables and liabilities is also permitted. When a multi-product compensation agreement is in place, institutions may take into account the compensation effects for exposures of different product categories. As a result, it is permissible to engage net counterparty credit exposures against non-derivative refinancing or other buyback, loan or similar agreements on securities or property. However, for such multi-product clearing agreements, the use of the internal modelling method is mandatory as the most risk-sensitive method. With respect to the minimum retention periods defined in LE CRE22.57, the minimum retention period is ten working days if a clearing package includes both the renu amaning style and other capital market transactions. In addition, a higher minimum retention period must be taken into account in the following cases: the prevention of “cherry picking” in the event of insolvency is the essence of compensation agreements. This is essentially a legal issue and legal opinions on the effectiveness of the agreement are collected in different legal systems. The agreement allows the parties to involve certain offices, allowing them to limit the scope of the application to jurisdictions in which legal support advice has been obtained. So far we have such opinions for England and Wales, Japan, Hong Kong, Singapore, Switzerland, the Netherlands, Belgium and Sweden. Even in the event of legal doubt in a given jurisdiction, the signing of an agreement offers the possibility of reducing the risk in the event of counterparty insolvency that would otherwise not exist. Loans and deposits with the accounting institution are treated by that institution as cash guarantees to calculate the effect of the capitalization credit guarantee on loans and deposits of the institution financed by the credit subject to the accounting clearing denominated in the same currency. The following conditions must be met for the clearing agreements to be covered for BIPRU 5 purposes, with the exception of compensation-master agreements relating to pension transactions, loan or loan or borrowing transactions and/or other capital market transactions, the following conditions must be met: 100% of credit risk.
This is done with limited use of haircuts or other calculation. Regulatory capital must be calculated, if any, on residual (net) debit risk. Basel states: “Where a bank (a) has a solid legal basis for concluding that the compensation or compensation agreement is applicable in any relevant jurisdiction, whether the counterparty is insolvent or bankrupt; (b) is at any time able to determine assets and liabilities with the same consideration subject to the clearing agreement; (c) monitors and controls its turnover risks; and (d) to monitor and control the exposures in question in a clear manner, an entity may recognize as eligible the accounting compensation of reciprocal exposures between the entity and its counterpart. The terms “credit risk mitigation techniques” refer to the guarantee agreements of institutions used to reduce the risk associated with credit positions. Chapter 5 of Part 2 of the Solvency Regulation specifies whether and to what extent guarantees are recognized.