In SA-CCR, add-ons are calculated for each asset class (interest rate, foreign exchange, credit, equity, and commodity). Their sum is multiplied by a multiplier to give the potential future exposure amount (PFE)1.
Consider a hypothetical example in which an uncollateralized yen swap has a notional amount of 10 billion yen and 5 years remaining. The effective notional is 44.24 billion yen, and with a supervisory factor of 0.50%, the add-on is 221 million yen.
Supervisory factors differ by asset class, for example 0.50% for interest rates and 4% for foreign exchange. For a trade under a margin agreement, the maturity adjustment is set by the MPOR rather than the remaining maturity. When the remaining maturity (capped at 250 business days) exceeds 2.25 times the MPOR, the adjustment is smaller than without a margin agreement, so the add-on is smaller too. For short-dated trades it can be the other way round.
Notes
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Financial Services Agency, "銀行法第十四条の二の規定に基づき、銀行がその保有する資産等に照らし自己資本の充実の状況が適当であるかどうかを判断するための基準" (Standards for determining whether a bank's capital adequacy is appropriate in light of the assets it holds, under Article 14-2 of the Banking Act, our translation; FSA Notice No. 19 of 2006; the FSA's full version) (in Japanese), Article 79-2, paragraph 6 (pages 192–193) and paragraphs 11 to 15 (pages 194–204). ↩