Prudential Regulation Authority Rulebook

4.1

1. (1) For the purposes of this Part, counterparty exposure is the amount a firm would lose if a counterparty were to fail to meet its obligations (either to the firm or to any other person) and if simultaneously securities issued or guaranteed by the counterparty were to become worthless.
2. (2) For the purposes of (1), the amount of loss is the amount, if any, by which the firm's capital resources (as calculated in accordance with the capital resources table but without making any deduction for assets in excess of market risk and counterparty limits) would decrease as a result of the counterparty failing to meet its obligations and the securities or assets becoming worthless.
3. (3) In determining the amount of loss in accordance with (2), the firm must take into account decreases in its capital resources that would result not only from its own direct exposures but also from:
1. (a) exposures held by any of its subsidiaries; and
2. (b) synthetic exposures arising from derivatives or quasi-derivatives held or entered into by the firm or any of its subsidiaries.