This chapter sets out the standardised approaches for the recognition of credit risk mitigation, such as collateral and guarantees.

Version effective as of 01 Jan 2023

Changes due to the December 2017 Basel III publication and the revised implementation date announced on 27 March 2020. Also, cross references to the securitisation chapters updated to include a reference to the chapter on NPL securitisations (CRE45) published on 26 November 2020.

Overarching issues

Introduction

22.1 Banks use a number of techniques to mitigate the credit risks to which they are exposed. For example, exposures may be collateralised by first-priority claims, in whole or in part with cash or securities, a loan exposure may be guaranteed by a third party, or a bank may buy a credit derivative to offset various forms of credit risk. Additionally banks may agree to net loans owed to them against deposits from the same counterparty [In this section, "counterparty" is used to denote a party to whom a bank has an on- or off-balance sheet credit exposure. That exposure may, for example, take the form of a loan of cash or securities (where the counterparty would traditionally be called the borrower), of securities posted as collateral, of a commitment or of exposure under an over-the-counter (OTC) derivatives contract.].

22.2 The framework set out in this chapter is applicable to banking book exposures that are risk-weighted under the standardised approach.

General requirements