AI Summary of Article 222 Financial Collateral Simple Method
This document outlines the conditions under which institutions may employ the Financial Collateral Simple Method, mandated for use alongside the Standardised Approach for calculating risk-weighted exposure amounts. Institutions must avoid selective application of this method to evade capital requirements or engage in regulatory arbitrage.
Key provisions include assigning risk weights based on the nature of the collateral and its market valuation, with significant mitigations available for transactions involving repurchase agreements, securities lending, and certain derivative instruments. Institutions are expected to adhere strictly to the criteria laid out, including proper treatment of debt securities issued by central governments and related entities.
Article 222 Financial Collateral Simple Method
1. Institutions may use the Financial Collateral Simple Method only where they calculate risk-weighted exposure amounts under the Standardised Approach. Institution shall not use both the Financial Collateral Simple Method and the Financial Collateral Comprehensive Method, except for the purposes of Articles 148(1) and 150(1). Institutions shall not use this exception selectively with the purpose of achieving reduced own funds requirements or with the purpose of conducting regulatory arbitrage.
2. Under the Financial Collateral Simple Method institutions shall assign to eligible financial collateral a value equal to its market value as determined in accordance with point (d) of Article 207(4).