AI Summary of Article 278 Potential future exposure
This document outlines the methodology for calculating the Potential Future Exposure (PFE) associated with netting sets, essential for risk assessment and management within financial institutions. The PFE is derived by aggregating add-ons for various risk categories, ensuring that any relevant transactions are included based on their categorisation. Institutions are required to consider all applicable add-ons where transactions are mapped to specific risk categories.
Furthermore, for netting sets under a single margin agreement, the total PFE is calculated by summing the individual netting set exposures, disregarding any margin agreements in the interim. The multiplier is set at a minimum of 5%, applying to specific collateral amounts as detailed, thereby solidifying the framework for enhanced risk oversight.
Article 278 Potential future exposure
1.Institutions shall calculate the potential future exposure of a netting set as follows:
where:
PFE = the potential future exposure;
a = the index that denotes the risk categories included in the calculation of the potential future exposure of the netting set;
AddOn(a) = the add-on for risk category a calculated in accordance with Articles 280a to 280f, as applicable; and
multiplier = the multiplication factor calculated in accordance with the formula referred to in paragraph 3.
For the purpose of this calculation, institutions shall include the add-on of a given risk category in the calculation of the potential future exposure of a netting set where at least one transaction of the netting set has been mapped to that risk category.