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Capital Requirements Regulation (CRR)
Article 384

Article 384 — Standardised method

  1. An institution which does not calculate the own funds requirements for CVA risk for its counterparties in accordance with Article 383 shall calculate a portfolio own funds requirements for CVA risk for each counterparty in accordance with the following formula, taking into account CVA hedges that are eligible in accordance with Article 386:
    $${K} = {2.33 \cdot \sqrt{{h}} \cdot \sqrt{{{\left (\sum 0.5 \cdot w _{i} \cdot (M _{i} \cdot \mathrm{EAD} _{i} ^{\mathrm{total}} - M _{i} ^{\mathrm{hedge}} B _{i}) - \sum w _{\mathrm{ind}} \cdot M _{\mathrm{ind}} \cdot B _{\mathrm{ind}}\right ) ^{2}} + \sum 0.75 \cdot w _{i} ^{2} \cdot {(M _{i} \cdot \mathrm{EAD} _{i} ^{\mathrm{total}} - M _{i} ^{\mathrm{hedge}} B _{i}) ^{2}}}}}$$

    where:

  2. Where a counterparty is included in an index on which a credit default swap used for hedging counterparty credit risk is based, the institution may subtract the notional amount attributable to that counterparty in accordance with its reference entity weight from the index CDS notional amount and treat it as a single name hedge (Bi) of the individual counterparty with maturity based on the maturity of the index.
    Table 1
    Credit quality stepWeight wi
    10,7 %
    20,8 %
    31,0 %
    42,0 %
    53,0 %
    610,0 %