15.The exposure measure includes both on-balance-sheet exposures and off-balance-sheet (OBS) items. On-balance-sheet exposures are generally included at their accounting value, although exposures arising from derivatives transactions and securities financing transactions (SFTs) are subject to separate treatment.

16.Except where a different treatment is specified, no offset is allowed for physical or financial collateral held, guarantees in favour of the bank or other credit risk mitigation techniques.

17.Balance sheet assets that are deducted from Tier 1 capital may also be deducted from the exposure measure. For example:

•Where a banking, financial or insurance entity is not included in the regulatory scope of consolidation, the amount of any investment in the capital of that entity that is totally or partially deducted from Common Equity Tier 1 (CET1) or Additional Tier 1 capital may also be deducted from the leverage ratio exposure measure.

•Prudent valuation adjustments for exposures to less liquid positions that are deducted from Tier 1 capital as per the Central Bank’s Market Risk Standards may be deducted from the leverage ratio exposure measure.

18.Liability items must not be deducted from the leverage ratio exposure measure. For example, gains/losses on fair valued liabilities or accounting value adjustments on derivative liabilities due to changes in the bank’s own credit risk must not be deducted from the leverage ratio exposure measure.

19.The Central Bank will be vigilant to transactions and structures that have the result of inadequately capturing banks’ sources of leverage. Examples of concerns that might arise in such leverage ratio exposure measure minimizing transactions and structures may include: securities financing transactions where exposure to the counterparty increases as the counterparty’s credit quality decreases or securities financing transactions in which the credit quality of the counterparty is positively correlated with the value of the securities received in the transaction (i.e. the credit quality of the counterparty falls when the value of the securities falls); banks that normally act as principal but adopt an agency model to transact in derivatives and SFTs in order to benefit from the more favorable treatment permitted for agency transactions under the leverage ratio framework; collateral swap trades structured to mitigate inclusion in the leverage ratio exposure measure; or use of structures to move assets off the balance sheet. This list of examples is by no means exhaustive.