5.11. Credit equivalent amounts for market-related items

(1) A Bank must calculate the credit equivalent amount of each of its market-related items. Unless the item is covered by an eligible netting agreement, the credit equivalent amount of a market- related off-balance-sheet item is the sum of the current credit exposure and the potential future credit exposure from the item.

(2) The procedure, formula and the credit conversion factors for this rule are provided in Section E (14) of Chapter 5 of the BPG.

(3) Potential future credit exposure must be based on an effective, rather than an apparent, notional principal amount. If the stated notional principal amount of an item is leveraged or enhanced by the structure of the item, the Bank must use the effective notional principal amount in calculating the potential future credit exposure. No potential future credit exposure is calculated for a singlecurrency floating/floating interest rate swap. The credit exposure from such an interest rate swap must be based on mark-to-market values.