14.2.2.9 Calculation of Downgrade Impact Amount

This section details the calculation of downgrade impact amount for derivatives and for other liabilities.

Calculation of Downgrade Impact Amount for Derivatives

The downgrade impact amount for derivatives is calculated as follows:

1. If a downgrade trigger does not exist for the derivatives contract or netting agreement, the downgrade impact amount is 0. Else,
2. If Net Exposure >0, the downgrade impact amount is 0. Else,
3. If Net Exposure <=0, the downgrade impact amount is calculated as follows:

   Figure 14-19 Formula to calculate downgrade impact amount for derivatives

   
   

   

   
   

Calculation of Downgrade Impact Amount for Other Liabilities

For other liabilities, including annuities, that have an associated downgrade, the downgrade impact amount is calculated as follows:

1. If a downgrade trigger does not exist for the liability account, the downgrade impact amount is

   0. Else,

2. The downgrade impact amount for liabilities other than derivatives and securitizations is calculated as follows:

   Figure 14-20 Formula to calculate downgrade impact amount for other liabilities

   
   

   

   
   

   Note:

   Any liability account that is triggered due to a particular level ratings downgrade has an outflow corresponding to a pre- specific percentage of the downgrade impact amount. For instance, if a 3 notch downgrade is specified, then the downgrade impact amount will outflow only for those accounts that have a trigger of 1-notc 2-notches, and 3- notches. If a 2- notch downgrade is specified, the downgrade impact amount will outflow only for those account that have a trigger of 1-notch and 2-notches.The ratings downgrade and the outflow percentage as specified by the regulator are part of the pre-configured business assumptions for LCR calculations.