1. Choice of the method
To measure the credit risks associated with the contracts listed in points 1 and 2 of Annex IV, credit institutions may choose, subject to the consent of the competent authorities, one of the methods set out below. Credit institutions which have to comply with Article 6(1) of Directive 93/6/EEC [Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment firms and credit institutions (OJ L 141, 11.6.1993, p. 1). Directive amended by Directive 98/33/EC (OJ L 204, 21.7.1998, p. 29).] must use method 1 set out below. To measure the credit risks associated with the contracts listed in point 3 of Annex IV all credit institutions must use method 1 set out below.
2. Methods
Method 1: the "mark to market" approach
Step (a): by attaching current market values to contracts (mark to market), the current replacement cost of all contracts with positive values is obtained.
Step (b): to obtain a figure for potential future credit exposure [Except in