AI Summary of Article 385 Simplified approach
The institution must comply with the stipulations outlined in Article 273a(2) or Article 273a(4) to compute own funds requirements for Counterparty Value Adjustment (CVA) risk. This calculation involves assessing the risk-weighted exposure amounts for counterparty risk as defined in Article 92(4), specifically regarding non-trading and trading book positions, adjusted by a factor of 12.5.
It is imperative that only transactions falling under the CVA risk requirements in Article 382 are included, while credit derivatives recognized as internal hedges against counterparty risk are excluded from this assessment. Institutions failing to maintain compliance with the established conditions must adhere to the provisions of Article 273b.
Article 385 Simplified approach
1. An institution that meets all of the conditions set out in Article 273a(2) or has been permitted by its competent authority in accordance with Article 273a(4) to apply the approach set out in Article 282, may calculate the own funds requirements for CVA risk as the risk-weighted exposure amounts for counterparty risk for non-trading book and trading book positions, respectively, referred to in Article 92(4), points (a) and (g), divided by 12,5.
2. For the purposes of the calculation referred to in paragraph 1, the following requirements shall apply:
(a) only transactions subject to the own funds requirements for CVA risk laid down in Article 382 are subject to that calculation;
(b) credit derivatives that are recognised as internal hedges against counterparty risk exposures are not included in that calculation.
3. An institution that no longer meets one or more of the conditions set out in Article 273a(2) or (4), as applicable, shall comply with the requirements set out in Article 273b.