40.OBS items arise from such transactions as credit and liquidity commitments, guarantees and standby letters of credit. The amount that is included in the exposure measure is determined by multiplying the notional amount of an OBS item by the relevant credit conversion factor (CCF) from the Central Bank’s Standards for Leverage Ratio.

41.The off-balance-sheet exposure measure will be calculated using credit equivalent values. This reflects the fact that the degree of leverage in these transactions is not the same as if banks had made fully funded loans. That is, a 100% credit conversion factor (CCF) overestimates leverage. The use of standardised CCFs retains a consistent and conservative treatment that is not dependent on the risk of the bank’s counterparty.

42.Where there is an undertaking to provide a commitment on an off-balance-sheet item, banks are to apply the lower of the two applicable CCFs. For example:

•If a bank has a commitment to open short-term self-liquidating trade letters of credit arising from the movement of goods, a 20% CCF will apply, instead of a 40% CCF; and

•If a bank has an unconditionally cancellable commitment to issue direct credit substitutes, a 10% CCF will apply, instead of a 100% CCF.