diff --git a/java/java-psi-api/src/com/intellij/psi/GenericsUtil.java b/java/java-psi-api/src/com/intellij/psi/GenericsUtil.java
index 4646aea635b3..0818ea4e41a0 100644
--- a/java/java-psi-api/src/com/intellij/psi/GenericsUtil.java
+++ b/java/java-psi-api/src/com/intellij/psi/GenericsUtil.java
@@ -21,10 +21,7 @@ import com.intellij.openapi.util.Condition;
 import com.intellij.openapi.util.Couple;
 import com.intellij.openapi.util.Pair;
 import com.intellij.psi.search.GlobalSearchScope;
-import com.intellij.psi.util.InheritanceUtil;
-import com.intellij.psi.util.PsiUtil;
-import com.intellij.psi.util.TypeConversionUtil;
-import com.intellij.psi.util.TypesDistinctProver;
+import com.intellij.psi.util.*;
 import com.intellij.util.containers.ContainerUtil;
 import com.intellij.util.containers.HashMap;
 import org.jetbrains.annotations.NotNull;
@@ -505,12 +502,12 @@ public class GenericsUtil {
 
   public static boolean checkNotInBounds(PsiType type, PsiType bound, PsiReferenceParameterList referenceParameterList) {
     //allow unchecked conversions in method calls but not in type declaration
-    return checkNotInBounds(type, bound, referenceParameterList.getParent() instanceof PsiReferenceExpression);
+    return checkNotInBounds(type, bound, PsiTreeUtil.getParentOfType(referenceParameterList, PsiCallExpression.class) != null);
   }
 
   public static boolean checkNotInBounds(PsiType type, PsiType bound, boolean uncheckedConversionByDefault) {
     if (type instanceof PsiClassType) {
-      return checkNotAssignable(bound, type, allowUncheckedConversions((PsiClassType)type, uncheckedConversionByDefault));
+      return checkNotAssignable(bound, type, uncheckedConversionByDefault);
     }
     if (type instanceof PsiWildcardType) {
       if (((PsiWildcardType)type).isExtends()) {
@@ -581,18 +578,4 @@ public class GenericsUtil {
       return !TypeConversionUtil.isAssignable(bound, type, allowUncheckedConversion);
     }
   }
-
-  private static boolean allowUncheckedConversions(PsiClassType type, boolean uncheckedConversionByDefault) {
-    final PsiClass psiClass = type.resolve();
-    if (psiClass != null) {
-      for (PsiTypeParameter parameter : PsiUtil.typeParametersIterable(psiClass)) {
-        if (parameter.getExtendsListTypes().length != 0) {
-          return false;
-        }
-      }
-      if (psiClass instanceof PsiTypeParameter && psiClass.getExtendsListTypes().length != 0) return false;
-    }
-    if (!type.isRaw()) return true;
-    return uncheckedConversionByDefault;
-  }
 }
diff --git a/java/java-psi-impl/src/com/intellij/psi/impl/PsiClassImplUtil.java b/java/java-psi-impl/src/com/intellij/psi/impl/PsiClassImplUtil.java
index 630ff802796a..7e12adac007d 100644
--- a/java/java-psi-impl/src/com/intellij/psi/impl/PsiClassImplUtil.java
+++ b/java/java-psi-impl/src/com/intellij/psi/impl/PsiClassImplUtil.java
@@ -26,6 +26,7 @@ import com.intellij.psi.*;
 import com.intellij.psi.filters.OrFilter;
 import com.intellij.psi.impl.source.ClassInnerStuffCache;
 import com.intellij.psi.impl.source.PsiImmediateClassType;
+import com.intellij.psi.impl.source.resolve.graphInference.InferenceSession;
 import com.intellij.psi.infos.MethodCandidateInfo;
 import com.intellij.psi.scope.ElementClassFilter;
 import com.intellij.psi.scope.ElementClassHint;
@@ -1005,7 +1006,7 @@ public class PsiClassImplUtil {
         PsiTypeParameter p2 = (PsiTypeParameter)another;
 
         return p1.getIndex() == p2.getIndex() &&
-               aClass.getManager().areElementsEquivalent(p1.getOwner(), p2.getOwner());
+               (aClass.getManager().areElementsEquivalent(p1.getOwner(), p2.getOwner()) || InferenceSession.areSameFreshVariables(p1, p2));
       }
       else {
         return false;
diff --git a/java/java-psi-impl/src/com/intellij/psi/impl/source/resolve/graphInference/InferenceSession.java b/java/java-psi-impl/src/com/intellij/psi/impl/source/resolve/graphInference/InferenceSession.java
index 542d5b7e7299..51350e124dd3 100644
--- a/java/java-psi-impl/src/com/intellij/psi/impl/source/resolve/graphInference/InferenceSession.java
+++ b/java/java-psi-impl/src/com/intellij/psi/impl/source/resolve/graphInference/InferenceSession.java
@@ -42,7 +42,7 @@ import java.util.*;
 public class InferenceSession {
   private static final Logger LOG = Logger.getInstance("#" + InferenceSession.class.getName());
   public static final Key<PsiType> LOWER_BOUND = Key.create("LowBound");
-
+  private static final Key<PsiElement> ORIGINAL_CONTEXT = Key.create("ORIGINAL_CONTEXT");
   private static final Key<Boolean> ERASED = Key.create("UNCHECKED_CONVERSION");
   private static final Function<Pair<PsiType, PsiType>, PsiType> UPPER_BOUND_FUNCTION = new Function<Pair<PsiType, PsiType>, PsiType>() {
     @Override
@@ -822,7 +822,11 @@ public class InferenceSession {
     LOG.assertTrue(file instanceof PsiJavaFile, classText);
     final PsiClass[] classes = ((PsiJavaFile)file).getClasses();
     LOG.assertTrue(classes.length == 1, classText);
-    return classes[0].getTypeParameters();
+    final PsiTypeParameter[] parameters = classes[0].getTypeParameters();
+    for (PsiTypeParameter parameter : parameters) {
+      parameter.putUserData(ORIGINAL_CONTEXT, myContext);
+    }
+    return parameters;
   }
 
   private static String getFreshVariableName(InferenceVariable var) {
@@ -1394,4 +1398,9 @@ public class InferenceSession {
     }
     return s.substitute(type);
   }
+
+  public static boolean areSameFreshVariables(PsiTypeParameter p1, PsiTypeParameter p2) {
+    final PsiElement originalContext = p1.getUserData(ORIGINAL_CONTEXT);
+    return originalContext != null && originalContext == p2.getUserData(ORIGINAL_CONTEXT);
+  }
 }
diff --git a/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/genericsHighlighting/InferredParameterInBoundsInRecursiveGenerics.java b/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/genericsHighlighting/InferredParameterInBoundsInRecursiveGenerics.java
new file mode 100644
index 000000000000..05ece82053e1
--- /dev/null
+++ b/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/genericsHighlighting/InferredParameterInBoundsInRecursiveGenerics.java
@@ -0,0 +1,15 @@
+class Builders {
+  public static A foo() {
+    return new A.Builder<>().create();
+  }
+
+  static class A<K extends A.Builder<K>> {
+    public static class Builder<T extends Builder<T>> {
+      public A<T> create() {
+        return null;
+      }
+    }
+  }
+}
+
+
diff --git a/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/genericsHighlighting8/InferredParameterInBoundsInRecursiveGenerics.java b/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/genericsHighlighting8/InferredParameterInBoundsInRecursiveGenerics.java
new file mode 100644
index 000000000000..05ece82053e1
--- /dev/null
+++ b/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/genericsHighlighting8/InferredParameterInBoundsInRecursiveGenerics.java
@@ -0,0 +1,15 @@
+class Builders {
+  public static A foo() {
+    return new A.Builder<>().create();
+  }
+
+  static class A<K extends A.Builder<K>> {
+    public static class Builder<T extends Builder<T>> {
+      public A<T> create() {
+        return null;
+      }
+    }
+  }
+}
+
+
diff --git a/java/java-tests/testSrc/com/intellij/codeInsight/daemon/GenericsHighlightingTest.java b/java/java-tests/testSrc/com/intellij/codeInsight/daemon/GenericsHighlightingTest.java
index 944e0756a3b0..3964bad42031 100644
--- a/java/java-tests/testSrc/com/intellij/codeInsight/daemon/GenericsHighlightingTest.java
+++ b/java/java-tests/testSrc/com/intellij/codeInsight/daemon/GenericsHighlightingTest.java
@@ -384,6 +384,10 @@ public class GenericsHighlightingTest extends LightDaemonAnalyzerTestCase {
     doTest(LanguageLevel.JDK_1_7, JavaSdkVersion.JDK_1_7, false);
   }
 
+  public void testInferredParameterInBoundsInRecursiveGenerics() {
+    doTest(LanguageLevel.JDK_1_7, JavaSdkVersion.JDK_1_7, false);
+  }
+
   public void testHiddenMethodsOfAnonymousClass() throws Exception {
     doTest(LanguageLevel.JDK_1_7, JavaSdkVersion.JDK_1_7, false);
   }
diff --git a/java/java-tests/testSrc/com/intellij/codeInsight/daemon/lambda/GenericsHighlighting8Test.java b/java/java-tests/testSrc/com/intellij/codeInsight/daemon/lambda/GenericsHighlighting8Test.java
index 49027135eecf..fb5046f194e9 100644
--- a/java/java-tests/testSrc/com/intellij/codeInsight/daemon/lambda/GenericsHighlighting8Test.java
+++ b/java/java-tests/testSrc/com/intellij/codeInsight/daemon/lambda/GenericsHighlighting8Test.java
@@ -766,6 +766,10 @@ public class GenericsHighlighting8Test extends LightDaemonAnalyzerTestCase {
     doTest(true);
   }
 
+  public void testInferredParameterInBoundsInRecursiveGenerics() {
+    doTest(false);
+  }
+
   private void doTest() {
     doTest(false);
   }