Derivative contracts – assumed 3 notch downgrade to credit rating– 100% outflow

1. 130) Some banks might have derivative contracts that include Credit Support Annex (CSA) which requires the bank to post collateral against its MTM position depending on its credit rating.
2. 131) Banks should assume a three notch downgrade to their credit rating and determine the cash outflow required to obtain the additional collateral required under the CSA as a result of the downgrade. The cash outflow will be treated as 100% outflow in the 30 day stress period under the LCR.
   
   Derivative contracts –Net outflow under the contract within 30 days – 100% outflow
3. 132) Known amounts to be paid on derivative contracts less known amounts to be received from derivative contracts within 30 days should be included in the LCR outflows at 100%. Cash flows may be calculated on a net basis by counterparty only where a valid netting agreement exists or when the inflow and outflow occurs within the same business day. Derivative cash flows in different currencies from the same counterparty when the inflow and outflow occurs on the same business day may be offset against each other.