Collateral maturity mismatchCollateral maturity mismatch

Collateral maturity mismatch

1. A maturity mismatch exists where the residual maturity of the term of lodgement of the collateral is less than the maturity of the exposure covered by the collateral.
2. Where there is a maturity mismatch, the collateral may only be recognised where the original maturity of the term of lodgement of the collateral is greater than or equal to 12 months and the residual maturity is greater than or equal to 3 months.
3. For the purpose of determining maturity:
   1. the effective maturity of the underlying exposure must be calculated using the longest possible remaining time before the counterparty is scheduled to fulfil its obligation; and
   2. for the collateral, an ADI must take into account any clause or incentive within the documentation supporting the transaction that may reduce its term of lodgement so that the shortest possible effective maturity is used.
4. Where there is a maturity mismatch, an ADI must apply the following adjustment:

Start formula C equals P times start fraction t minus 0.25 over T minus 0.25 end fraction end formula.

where:

C = value of the collateral adjusted for maturity mismatch

P = collateral amount

t = min (T, residual maturity of the term of lodgement of the collateral) expressed in years

T = min (5, residual maturity of the exposure) expressed in years.