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FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms

In the revised Basel III treatment of the leverage ratio exposure measure for derivatives, which change was introduced as part of the post-crisis reforms?

The reforms replaced the current exposure method with SA-CCR for derivatives and allowed cash variation margin to reduce exposure only when strict conditions are met. Netting was not prohibited, notional amounts alone were not used, and written credit derivatives remain in the exposure measure.

  1. ACash variation margin received may offset derivative exposure only under strict conditions, and the standardised approach for counterparty credit risk (SA-CCR) replaced the current exposure methodCorrect
  2. BNetting of derivatives exposure was prohibited entirely
  3. CDerivatives exposure was measured only by notional amounts without any adjustment
  4. DWritten credit derivatives were removed from the exposure measure

Explanation

The revised framework replaced the current exposure method with SA-CCR for the derivatives exposure and permitted limited recognition of cash variation margin if strict conditions are met. Netting is not banned, notional is not used alone, and written credit derivatives are included with specific treatment.

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