Version status: Applicable | Document consolidation status: Updated to reflect all known changes
Version date: 1 January 2014 - 27 June 2021
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Article 401 Calculating the effect of the use of credit risk mitigation techniques

1. For calculating the value of exposures for the purposes of Article 395(1) an institution may use the 'fully adjusted exposure value' as calculated under Part Three, Title II, Chapter 4 taking into account the credit risk mitigation, volatility adjustments, and any maturity mismatch (E*).

2. An institution permitted to use own estimates of LGDs and conversion factors for an exposure class under Part Three, Title II, Chapter 3 may, subject to a permission by the competent authorities recognise the effects of financial collateral in calculating the value of exposures for the purposes of Article 395(1).

Competent authorities shall grant the permission referred to in preceding subparagraph only if the institution can estimate the effects of financial collateral on their exposures separately from other LGD-relevant aspects.

The estimates produced by the institution shall be sufficiently suitable for reducing the exposure value for the purposes of compliance with the provisions of Article