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German Banking Industry Committee (GBIC)

From our point of view it is not entirely clear what the ‘place of the debtor’ is in the case of a derivative position. The definition in Article 1 para. 5 refers to the residence of the issuer of the financial instrument or the counterparty. This would conflict with the calculation of capital requirements for derivative exposures which are geared to the underlying exposure. Therefore it should be clarified that in case of a derivative position the ‘place of the debtor’ shall be the place where the issuer of the underlying financial instrument is located.
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Regarding specialized lending where the cash flow generating property or asset is movable (e.g. ships) it should be specified whether the exposure shall be deemed to be located in the Country of the developer, of the freighter, of the shipper or of the charterer.

Furthermore it should be clarified where specialized lending exposures shall be deemed to be located if these exposures encompass locations in different countries.
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Although the explanatory text is clearly drafted the wording of article 2 para 4 should be more precisely. The article does not state clearly that for the calculation of the 2%-threshold the risk weighted exposure has also to be taken into account in the enumerator. The formula should therefore look as follows (see also uploaded file for formula):




To reflect this understanding in the article accordingly, article 2 para 4 should be complemented as follows:

4. Notwithstanding paragraphs 2 and 3 of this Article, if the aggregate amount of an institution’s foreign credit risk weighted exposures does not exceed 2% of their aggregate of credit, trading book and securitization risk weighted exposures, these credit exposures shall be deemed to be located at the place of the institution.
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Michael Engelhard
G