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Gleiss Lutz Hootz Hirsch Frankfurt

The German Federal Banking Supervisory Authority (BAKred) has released a Circular (10/99) regulating the treatment of credit derivatives for the purposes of the capital adequacy requirement rules and the rules governing the reporting of large scale loan exposures and loans of Dm3 million or more. The Circular describes the three main types of credit derivatives, namely:

  • total return swaps;
  • credit default swaps; and
  • credit linked notes.

The Circular stipulates, among other things, how these are to be allocated to the trading account or investment book and lays down how the market and credit risk of the underlying and counterparty risk are to be weighted, in particular, how the transfer of credit risks and/or market risks pursuant to narrowly defined criteria can provide capital adequacy relief. If credit derivatives are used which deviate substantially from the three basic structures defined in the Circular their consideration for capital adequacy purposes and the large scale loan exposure and Dm3 million loan reporting rules must be agreed with the BAKred.

Banking exemption for Australian credit institutions

Australian credit institutions will be delighted to hear that the Ministry of Finance has issued a regulation exempting branches of Austrialian banks wholly or partially from certain provisions of the German Banking Act, namely those relating to capital adequacy, large scale loans and restrictions on investments. Up to now, such concessions have only applied to branches of US and Japanese banks.

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