HSBC 2012 Annual Report Download - page 302

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Capital > Appendix to Capital > CRD IV end point // Corporate Governance > Report / Letter from Group Chairman
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Under CRD IV, the amount of such deferred tax assets and significant investments which individually and in
aggregate exceed 10% and 15%, respectively, of our CET1 are fully deducted from CET1 capital. Amounts falling
below the 10% and 15% thresholds are risk weighted at 250%.
Changes to capital requirements introduced by CRD IV
Credit valuation adjustment: introduced as a new requirement under CRD IV rules, this is a capital charge to cover
the risk of mark-to-market losses on expected counterparty risk and referred to as a regulatory CVA risk capital
charge.
We have estimated our regulatory CVA risk capital charge based on the draft July 2011 CRD IV text, calculated on a
full range of OTC derivative counterparties without exemptions that may be available under the final CRD IV text.
Where we have both specific risk VAR approval and internal model method approval for a product, the CVA VAR
approach has been used to calculate the CVA capital charge. Where we do not hold both approvals, the standardised
approach has been applied.
Counterparty credit risk (other than credit valuation adjustment): the additional requirements introduced by
CRD IV and included in the CCR charge include: the increase in the asset value correlation multiplier for financial
counterparties, additional requirements for collateralised counterparties, margin period of risk and new requirements
for exposures to central clearing counterparties (‘CCPs’).
In estimating the amount included for CCPs, we have assumed that all our CCPs are ‘qualifying’ under the
requirements of CRD IV, although this will ultimately depend on confirmation from the competent regulatory
authority of the CCP in question that the CCP complies with all the recommendations for CCPs published by the
Committee on payment and settlement systems and by the technical committee of the International Organisation of
Securities Commissions. Where we do not have full data disclosed for a given CCP, we have assumed full deduction
of default fund exposures.
Amounts in aggregate below 15% threshold and therefore subject to 250% risk weight: as explained above,
items that fall under the threshold approach treatment under CRD IV, and which are below the 10% and 15%
thresholds, are risk-weighted at 250%.
Securitisation positions and free deliveries risk-weighted under CRD IV: securitisation positions which were
deducted 50% from core tier 1 and 50% from total capital, and free deliveries that were deducted from total capital
under current rules, are now included in RWAs at 1,250%.
Investment in commercial entities now risk-weighted: under CRDIV investments in commercial entities that are
not qualifying holdings are risk weighted. These were deducted under the current rules.
Deferred tax assets moved to threshold approach or deduction under CRD IV: deferred tax assets, which were
risk-weighted at 100% under the standardised approach under current rules, are treated as a capital deduction from
CET1 to the extent they rely on the future profitability of the bank to be realised. Those that do not rely on future
profitability shall continue to be risk weighted.