A. Counterparty credit risk

97. In addition to raising the quality and level of the capital base, there is a need to ensure that all material risks are captured in the capital framework. Failure to capture major on- and off-balance sheet risks, as well as derivative related exposures, was a key factor that amplified the crisis. This section outlines the reforms to the counterparty credit risk framework, which become effective on 1 January 2013.

1. Revised metric to better address counterparty credit risk, credit valuation adjustments and wrong-way risk

Effective EPE with stressed parameters to address general wrong-way risk

98. In order to implement these changes, a new paragraph 25(i) will be inserted in Section V (Internal Model Method: measuring exposure and minimum requirements), Annex 4, of the Basel II framework and the existing paragraph 61 of Annex 4 will be revised as follows for banks with permission to use the internal models method (IMM) to calculate counterparty credit risk (CCR) regulatory capital – hereafter referred to as "IMM banks":