(a) General requirements for the SSFA. To use the SSFA to determine
the risk weight for a securitization exposure, a Board-regulated institution
must have data that enables it to assign accurately the parameters
described in paragraph (b) of this section. Data used to assign the
parameters described in paragraph (b) of this section must be the
most currently available data; if the contracts governing the underlying
exposures of the securitization require payments on a monthly or quarterly
basis, the data used to assign the parameters described in paragraph
(b) of this section must be no more than 91 calendar days old. A Board-regulated
institution that does not have the appropriate data to assign the
parameters described in paragraph (b) of this section must assign
a risk weight of 1,250 percent to the exposure.
(b) SSFA parameters. To calculate
the risk weight for a securitization exposure using the SSFA, a Board-regulated
institution must have accurate information on the following five inputs
to the SSFA calculation:
(1) KG is the weighted-average
(with unpaid principal used as the weight for each exposure) total
capital requirement of the underlying exposures calculated using this
subpart. KG is expressed as a decimal value between zero
and one (that is, an average risk weight of 100 percent represents
a value of KG equal to 0.08).
(2) Parameter W is expressed as a decimal
value between zero and one. Parameter W is the ratio of the sum of
the dollar amounts of any underlying exposures of the securitization
that meet any of the criteria as set forth in paragraphs (b)(2)(i)
through (vi) of this section to the balance, measured in dollars,
of underlying exposures:
(i) Ninety days or more past due;
(ii) Subject to a bankruptcy
or insolvency proceeding;
(iii) In the process of foreclosure;
(iv) Held as real estate
owned;
(v) Has contractually
deferred payments for 90 days or more, other than principal or interest
payments deferred on:
(A) Federally-guaranteed student loans, in accordance
with the terms of those guarantee programs; or
(B) Consumer loans, including non-federally-guaranteed
student loans, provided that such payments are deferred pursuant to
provisions included in the contract at the time funds are disbursed
that provide for period(s) of deferral that are not initiated based
on changes in the creditworthiness of the borrower; or
(vi) Is in default.
(3) Parameter
A is the attachment point for the exposure, which represents the threshold
at which credit losses will first be allocated to the exposure. Except
as provided in section 217.42(i) for nth-to-default credit
derivatives, parameter A equals the ratio of the current dollar amount
of underlying exposures that are subordinated to the exposure of the
Board-regulated institution to the current dollar amount of underlying
exposures. Any reserve account funded by the accumulated cash flows
from the underlying exposures that is subordinated to the Board-regulated
institution’s securitization exposure may be included in the calculation
of parameter A to the extent that cash is present in the account.
Parameter A is expressed as a decimal value between zero and one.
(4) Parameter D is the
detachment point for the exposure, which represents the threshold
at which credit losses of principal allocated to the exposure would
result in a total loss of principal. Except as provided in section
42(i) for nth-to-default credit derivatives, parameter
D equals parameter A plus the ratio of the current dollar amount of
the securitization exposures that are pari passu with the exposure
(that is, have equal seniority with respect to credit risk) to the
current dollar amount of the underlying exposures. Parameter D is
expressed as a decimal value between zero and one.
(5) A supervisory calibration parameter,
p, is equal to 0.5 for securitization exposures that are not resecuritization
exposures and equal to 1.5 for resecuritization exposures.
(c) Mechanics of the SSFA. KG and W are used to calculate KA, the augmented
value of KG, which reflects the observed credit quality
of the underlying exposures. KA is defined in paragraph
(d) of this section. The values of parameters A and D, relative to
KA determine the risk weight assigned to a securitization
exposure as described in paragraph (d) of this section. The risk weight
assigned to a securitization exposure, or portion of a securitization
exposure, as appropriate, is the larger of the risk weight determined
in accordance with this paragraph (c) or paragraph (d) of this section
and a risk weight of 20 percent.
(1) When the detachment point, parameter
D, for a securitization exposure is less than or equal to KA, the exposure must be assigned a risk weight of 1,250 percent.
(2) When the attachment
point, parameter A, for a securitization exposure is greater than
or equal to KA, the Board-regulated institution must calculate
the risk weight in accordance with paragraph (d) of this section.
(3) When A is less than
KA and D is greater than KA, the risk weight
is a weighted-average of 1,250 percent and 1,250 percent times KSSFA calculated in accordance with paragraph (d) of this section.
For the purpose of this weighted-average calculation:
(i) The weight
assigned to 1,250 percent equals
Figure 1. DISPLAY EQUATION
$$\mathrm{\frac{K_A - A}{D - A}}$$
(ii)
The weight assigned to 1,250 percent times K
SSFA equals
Figure 2. DISPLAY EQUATION
$$\frac{D-K_A}{D - A}$$
(iii)
The risk weight will be set equal to:
Figure 3. DISPLAY EQUATION
$$
RW = \bigg[ \bigg(\frac{K_A - A}{D-A} \bigg) \cdot \text{1,250 } percent \bigg] + \\
\bigg[ \bigg(\frac{D-K_A}{D-A} \bigg) \cdot \text{1,250 } percent \cdot K_{SSFA}\bigg]
$$
Figure 4. DISPLAY EQUATION
(d) SSFA equation.
(1) The Board-regulated institution must
define the following parameters:
K A = (1 −W) • K G + (0 . 5 • W)
Figure 5. DISPLAY EQUATION
$$
a = - \frac{1}{p \cdot K_A}
$$
u
= D − K A
l = max(A − K A, 0)
e = 2.71828,
the base of the natural logarithms.
(2) Then the Board-regulated institution must calculate
KSSFA according to the following equation:
Figure 6. DISPLAY EQUATION
$$
K_{SSFA} = \frac{e^{a \cdot u} - e^{a \cdot l}}{a(u-l)}
$$
(3) The risk weight for
the exposure (expressed as a percent) is equal to KSSFA × 1,250.
(e) Gross-up approach.
(1) Applicability. A Board-regulated institution that is not subject to subpart F of
this part may apply the gross-up approach set forth in this section
instead of the SSFA to determine the risk weight of its securitization
exposures, provided that it applies the gross-up approach to all of
its securitization exposures, except as otherwise provided for certain
securitization exposures in sections 217.44 and 217.45.
(2) To use the gross-up approach,
a Board-regulated institution must calculate the following four inputs:
(i) Pro rata share, which is the par value of the Board-regulated
institution’s securitization exposure as a percent of the par value
of the tranche in which the securitization exposure resides;
(ii) Enhanced amount, which
is the par value of tranches that are more senior to the tranche in
which the Board-regulated institution’s securitization resides;
(iii) Exposure amount
of the Board-regulated institution’s securitization exposure calculated
under section 217.42(c); and
(iv) Risk weight, which is the weighted-average
risk weight of underlying exposures of the securitization as calculated
under this subpart.
(3) Credit equivalent
amount. The credit equivalent amount of a securitization exposure
under this section equals the sum of:
(i) The exposure amount
of the Board-regulated institution’s securitization exposure; and
(ii) The pro rata share
multiplied by the enhanced amount, each calculated in accordance with
paragraph (e)(2) of this section.
(4) Risk-weighted
assets. To calculate risk-weighted assets for a securitization
exposure under the gross-up approach, a Board-regulated institution
must apply the risk weight required under paragraph (e)(2) of this
section to the credit equivalent amount calculated in paragraph (e)(3)
of this section.
(f) Limitations. Notwithstanding any other
provision of this section, a Board-regulated institution must assign
a risk weight of not less than 20 percent to a securitization exposure.
