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Collateral Value Simplification

Counterparty Risk

Calculate the Risk-Adjusted Collateral Value instantly.

€

Risk-Adjusted Collateral Value

€11 900 000

1Step 1

article_112_primary_case_flag

article_112_primary_case_flag=min⁡(Counterparty Requirement Met (0/1),Third-Party Custody Requirement Met (0/1))\textit{article\_112\_primary\_case\_flag} = \min(\textit{Counterparty Requirement Met (0/1)}, \textit{Third-Party Custody Requirement Met (0/1)})
2Step 2

article_112_secondary_case_flag

article_112_secondary_case_flag=min⁡(Counterparty Requirement Met (0/1),Article 214 Conditions Met for the Alternative Case (0/1),1−Third-Party Custody Requirement Met (0/1))\textit{article\_112\_secondary\_case\_flag} = \min(\textit{Counterparty Requirement Met (0/1)}, \textit{Article 214 Conditions Met for the Alternative Case (0/1)}, 1 - \textit{Third-Party Custody Requirement Met (0/1)})
3Step 3

85% Recognition Case

85% Recognition Case=Collateral Value×0.85×article_112_primary_case_flag\textit{85\% Recognition Case} = \textit{Collateral Value} \times 0.85 \times \textit{article\_112\_primary\_case\_flag}
4Step 4

75% Recognition Case

75% Recognition Case=Collateral Value×0.75×article_112_secondary_case_flag\textit{75\% Recognition Case} = \textit{Collateral Value} \times 0.75 \times \textit{article\_112\_secondary\_case\_flag}
5Step 5

Risk-Adjusted Collateral Value

Risk-Adjusted Collateral Value=max⁡(85% Recognition Case,75% Recognition Case)\textit{Risk-Adjusted Collateral Value} = \max(\textit{85\% Recognition Case}, \textit{75\% Recognition Case})

Understand the Collateral Value Simplification

Overview

This calculator implements the simplified capital requirement for Collateral Arrangements within the Solvency II counterparty risk module.[1] This simplified approach is intended for undertakings where the standard-formula calculation is disproportionately complex relative to the risk. The requirement is defined as the economic capital necessary to provide a 1-in-200 year level of protection using proxy variables for collateral values and haircut adjustments.[2]

Input Terms

  • Collateral Value (C): The current market value of the assets held as collateral against counterparty exposure.[1]
  • Specified Haircut Proxy: The regulatory factor used to proxy the 1-in-200 year depreciation in collateral value.

Technical Rationale

The Counterparty Collateral Simplification is calibrated to a 99.5% confidence level over a one-year horizon. It captures the sensitivity of the undertaking’s basic own funds to a default where the recovery is dependent on the liquidation of collateral. Unlike a full article-by-article revaluation, which requires complex market-risk modeling for each collateral item, this simplification uses a direct haircut-based proxy where the net exposure is a function of the exposure value and the simplified collateral value.[1]

This method is governed by the principle of proportionality (Article 109), ensuring that smaller undertakings can calculate their solvency capital requirements without the operational burden of a full-scale collateral-valuation engine. The result represents the simplified collateralized contribution to the total Counterparty Default Risk.

Important Notes

  • Regulatory deviation: Material deviation from the standard-formula assumptions or from the conditions supporting this simplification may support a capital add-on or a move toward a fuller or internal-model approach where justified.[3]
  • Reporting: The simplified result is intended to support the corresponding standard-formula component feeding the S.25.01 standard-formula reporting view, not to replace the connected article-chain result where the simplification is not justified.[4]

Sources

  1. Delegated Regulation (EU) 2015/35 - Art. 112 (Counterparty default type 1 simplification conditions) - EUR-Lex
  2. Directive 2009/138/EC - Art. 101 (99.5% VaR / 1-in-200 calibration) - EIOPA
  3. Directive 2009/138/EC - Art. 37 (Capital add-on) - EIOPA
  4. Commission Implementing Regulation (EU) 2015/2450 - QRT S.25.01 - EUR-Lex

Default values are illustrative sample inputs for navigation, training, and QA. Replace them with controlled data before using the result in capital analysis, governance, or reporting decisions.