Maturity mismatch

1. A maturity mismatch exists where the residual maturity of a guarantee is less than the maturity of the exposure covered by the guarantee.
2. Where there is a maturity mismatch, a guarantee may only be recognised as eligible CRM where the original maturity of the guarantee is greater than or equal to 12 months and the residual maturity is greater than or equal to 3 months.
3. Where credit protection provided by a single guarantor to the same underlying exposure has different maturities, an ADI must divide the exposure into separate covered portions for risk-weighting purposes.
4. For the purposes 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 guarantee, an ADI must take into account any clause or incentive within the documentation supporting the transaction that may reduce its maturity so that the shortest possible effective maturity is used.
5. Where there is a maturity mismatch, an ADI must apply the following adjustment:

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

where:

Pa = value of the guarantee adjusted for maturity mismatch

P = guarantee amount adjusted for any haircuts (in which case,
P = Ga as determined in paragraph 9 of this Attachment)

t = min (T, residual maturity of the guarantee) expressed in years

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