Direct credit substitutesDirect credit substitutes

Direct credit substitutes

This includes any irrevocable off-balance sheet obligations, which carry the same credit risk as a direct extension of credit. The following are examples constituting a direct credit substitute (i.e. the risk of loss depends on the creditworthiness of the counterparty, or the party on which a potential claim is acquired):

• An undertaking to make a payment to a third party in the event that a counterparty fails to meet a financial obligation; or
• An undertaking to a counterparty to acquire a potential claim on another party in the event of default by that party.

This includes potential credit exposures arising from the issue/provision of following:

• guarantees;
• credit derivatives (i.e. selling credit protection);
• standby letters of credit serving as financial guarantees for loans, securities and any other financial liabilities; and
• bill endorsements