(1)

An firm'scapital resources comprises:





Tier one and tier two capital resources

1000


Eligible tier three capital resources

100


Amended capital resources

1100


(2)

The components of the large exposure comprise:





(a) Nontrading bookexposure

200


(b) Mark to market value of trading book securities:




% specific risk weight



Short: qualifying bond

1.00

(20)


Long: qualifying commercial paper

0.25

100


Long: equity

4.00

150


Long: qualifying convertible

1.60

30


Total net long securities position:

260


Total net large exposures position [(a) + (b)]

460

Calculating the exposure for which incremental capital is needed

(3)

The short position in the qualifying bond is offset against the highest specific risk weight items  in this case equities:





Net long equity position (150 20)

130

(4)

The remaining items are ranked according to specific risk weight.


% specific risk weight

Security



0.25

Qualifying commercial paper

100


1.60

Qualifying convertible

30


4.00

Equity (net)

130

(5)

The 'headroom' between the nontrading book exposure and 25% of the amended capital resources is calculated.





25% of amended capital base (1100)

275


Nontrading book
exposure

200


Headroom

75

(6)

Applying the securities positions in ascending order of specific risk weight, 75 of the 100 qualifying commercial paper may be counted before 25% of the amended capital base is reached.
The remaining 25 of qualifying commercial paper, along with 30 qualifying convertible and 130 equity (net) are traded securities exposures in excess of the limit and should therefore be covered by incremental capital. The amount of incremental capital should be included in the calculation for determining how much trading book capital a firm should have.

(7)

If the excess exposure has been outstanding for 10 days or less, the specific risk weights for the elements over 25% of amended capital resources should be doubled.
The 25% limit (275) is taken up by 200 nontrading bookexposure and 75 trading bookexposure within the limit. These two items, when added to the items in bold below, total 460. 460 is the total net large exposures position as set out in (2) above.






Qualifying commercial paper

25 x 0.25% x 200% =

0.125


Qualifying convertible

30 x 1.60% x 200% =

0.960


Equity

130 x 4% x 200% =

10.400


Additional capital requirement

11.485

(8)

If the excess exposure has been outstanding for more than 10 days, the 25% limit (275) is taken up by 200 nontrading bookexposure and 75 trading bookexposure within the limit. These two items, when added to the items in bold below, total 460. 460 is the total net large exposures position as set out in (2) above.





(a)

Over 25% and up to 40% of amended capital base at 200% (40% of 1100 = 440)



Amount of trading book concentration risk excess = 185
Appropriate % Multiplier Band = 200%



25 x 0.25% x 200% =

0.125


30 x 1.60% x 200% =

0.960


110 x 4.00% x 200% =

8.800


(b)

Excess exposure 40%  60% of amended capital base at 300%




20 x 4.00% x 300% =

2.400


Additional capital requirement [(a)+(b)]

12.285
