Without prejudice to BIPRU 5.6.1 R, eligibility is limited to reciprocal cash balances between a firm and a counterparty. Only loans and deposits of the lending firm may be subject to a modification of risk weighted exposure amounts and, as relevant, expected loss amounts as a result of an on-balance sheet netting agreement.
[Note: BCD Annex VIII Part 1 point 4]
For on-balance sheet netting agreements - other than master netting agreements covering repurchase transactions, securities or commodities lending or borrowing transactions and/or other capital market-driven transactions - to be recognised for the purposes of BIPRU 5 the following conditions must be satisfied:
they must be legally effective and enforceable in all relevant jurisdictions, including in the event of the insolvency or bankruptcy of a counterparty;
the firm must be able to determine at any time those assets and liabilities that are subject to the on-balance sheet netting agreement;
the firm must monitor and control the risks associated with the termination of the credit protection; and
[Note: BCD Annex VIII Part 2 point 3]