(a) Securitization risk weight approaches. Except as provided elsewhere
in this section or in section 217.41:
(1) A Board-regulated institution must
deduct from common equity tier 1 capital any after-tax gain-on-sale
resulting from a securitization and apply a 1,250 percent risk weight
to the portion of a CEIO that does not constitute after-tax gain-on-sale.
(2) If a securitization
exposure does not require deduction under paragraph (a)(1) of this
section, a Board-regulated institution may assign a risk weight to
the securitization exposure using the simplified supervisory formula
approach (SSFA) in accordance with sections 217.43(a) through 217.43(d)
and subject to the limitation under paragraph (e) of this section.
Alternatively, a Board-regulated institution that is not subject to
subpart F of this part may assign a risk weight to the securitization
exposure using the gross-up approach in accordance with section 217.43(e),
provided, however, that such Board-regulated institution must apply
either the SSFA or the gross-up approach consistently across all of
its securitization exposures, except as provided in paragraphs (a)(1),
(a)(3), and (a)(4) of this section.
(3) If a securitization exposure does not
require deduction under paragraph (a)(1) of this section and the Board-regulated
institution cannot, or chooses not to apply the SSFA or the gross-up
approach to the exposure, the Board-regulated institution must assign
a risk weight to the exposure as described in section 217.44.
(4) If a securitization exposure
is a derivative contract (other than protection provided by a Board-regulated
institution in the form of a credit derivative) that has a first priority
claim on the cash flows from the underlying exposures (notwithstanding
amounts due under interest rate or currency derivative contracts,
fees due, or other similar payments), a Board-regulated institution
may choose to set the risk-weighted asset amount of the exposure equal
to the amount of the exposure as determined in paragraph (c) of this
section.
(b) Total risk-weighted assets for securitization exposures. A Board-regulated
institution’s total risk-weighted assets for securitization exposures
equals the sum of the risk-weighted asset amount for securitization
exposures that the Board-regulated institution risk weights under
sections 217.41(c), 217.42(a)(1), and 217.43, 217.44, or 217.45, and
paragraphs (e) through (j) of this section, as applicable.
(c) Exposure amount of a securitization
exposure.
(1) On-balance
sheet securitization exposures. The exposure amount of an on-balance
sheet securitization exposure (excluding an available-for-sale or
held-to-maturity security where the Board-regulated institution has
made an AOCI opt-out election under section 217.22(b)(2), a repo-style
transaction, eligible margin loan, OTC derivative contract, or cleared
transaction) is equal to the carrying value of the exposure.
(2) On-balance sheet securitization exposures held by a Board-regulated
institution that has made an AOCI opt-out election. The exposure
amount of an on-balance sheet securitization exposure that is an available-for-sale
or held-to-maturity security held by a Board-regulated institution
that has made an AOCI opt-out election under section 217.22(b)(2)
is the Board-regulated institution’s carrying value (including net
accrued but unpaid interest and fees), less any net unrealized gains
on the exposure and plus any net unrealized losses on the exposure.
(3) Off-balance sheet securitization exposures.
(i) Except as provided in paragraph
(j) of this section, the exposure amount of an off-balance sheet securitization
exposure that is not a repo-style transaction, eligible margin loan,
cleared transaction (other than a credit derivative), or an OTC derivative
contract (other than a credit derivative) is the notional amount of
the exposure. For an off-balance sheet securitization exposure to
an ABCP program, such as an eligible ABCP liquidity facility, the
notional amount may be reduced to the maximum potential amount that
the Board-regulated institution could be required to fund given the
ABCP program’s current underlying assets (calculated without regard
to the current credit quality of those assets).
(ii) A Board-regulated institution must
determine the exposure amount of an eligible ABCP liquidity facility
for which the SSFA does not apply by multiplying the notional amount
of the exposure by a CCF of 50 percent.
(iii) A Board-regulated institution
must determine the exposure amount of an eligible ABCP liquidity facility
for which the SSFA applies by multiplying the notional amount of the
exposure by a CCF of 100 percent.
(4) Repo-style
transactions, eligible margin loans, and derivative contracts. The exposure amount of a securitization exposure that is a repo-style
transaction, eligible margin loan, or derivative contract (other than
a credit derivative) is the exposure amount of the transaction as
calculated under section 217.34 or section 217.37, as applicable.
(d) Overlapping
exposures. If a Board-regulated institution has multiple securitization
exposures that provide duplicative coverage to the underlying exposures
of a securitization (such as when a Board-regulated institution provides
a program-wide credit enhancement and multiple pool-specific liquidity
facilities to an ABCP program), the Board-regulated institution is
not required to hold duplicative risk-based capital against the overlapping
position. Instead, the Board-regulated institution may apply to the
overlapping position the applicable risk-based capital treatment that
results in the highest risk-based capital requirement.
(e) Implicit support. If
a Board-regulated institution provides support to a securitization
in excess of the Board-regulated institution’s contractual obligation
to provide credit support to the securitization (implicit support):
(1) The Board-regulated institution
must include in risk-weighted assets all of the underlying exposures
associated with the securitization as if the exposures had not been
securitized and must deduct from common equity tier 1 capital any
after-tax gain-on-sale resulting from the securitization; and
(2) The Board-regulated institution
must disclose publicly:
(i) That it has provided implicit support
to the securitization; and
(ii) The risk-based capital impact to
the Board-regulated institution of providing such implicit support.
(f) Undrawn portion of a servicer cash advance facility.
(1) Notwithstanding any other provision
of this subpart, a Board-regulated institution that is a servicer
under an eligible servicer cash advance facility is not required to
hold risk-based capital against potential future cash advance payments
that it may be required to provide under the contract governing the
facility.
(2) For a
Board-regulated institution that acts as a servicer, the exposure
amount for a servicer cash advance facility that is not an eligible
servicer cash advance facility is equal to the amount of all potential
future cash advance payments that the Board-regulated institution
may be contractually required to provide during the subsequent 12
month period under the contract governing the facility.
(g) Interest-only mortgage-backed
securities. Regardless of any other provisions in this subpart,
the risk weight for a non-credit-enhancing interest-only mortgage-backed
security may not be less than 100 percent.
(h) Small-business loans and leases on personal
property transferred with retained contractual exposure.
(1) Regardless of any other provision of
this subpart, a Board-regulated institution that has transferred small-business
loans and leases on personal property (small-business obligations)
with recourse must include in risk-weighted assets only its contractual
exposure to the small-business obligations if all the following conditions
are met:
(i) The transaction must be treated
as a sale under GAAP.
(ii) The Board-regulated institution establishes and maintains, pursuant
to GAAP, a non-capital reserve sufficient to meet the Board-regulated
institution’s reasonably estimated liability under the contractual
obligation.
(iii)
The small-business obligations are to businesses that meet the criteria
for a small-business concern established by the Small Business Administration
under section 3(a) of the Small Business Act (15 U.S.C. 632 et
seq.).
(iv) (A) In the case of a state member
bank, the bank is well capitalized, as defined in 12 CFR 208.43. For
purposes of determining whether a state member bank is well capitalized
for purposes of this paragraph (h), the state member bank’s capital
ratios must be calculated without regard to the capital treatment
for transfers of small-business obligations under this paragraph (h).
(B) In the case of a bank
holding company or savings and loan holding company, the bank holding
company or savings and loan holding company is well capitalized, as
defined in 12 CFR 225.2. For purposes of determining whether a bank
holding company or savings and loan holding company is well capitalized
for purposes of this paragraph (h), the bank holding company or savings
and loan holding company’s capital ratios must be calculated without
regard to the capital treatment for transfers of small-business obligations
with recourse specified in paragraph (k)(1) of this section.
(2) The total
outstanding amount of contractual exposure retained by a Board-regulated
institution on transfers of small-business obligations receiving the
capital treatment specified in paragraph (h)(1) of this section cannot
exceed 15 percent of the Board-regulated institution’s total capital.
(3) If a Board-regulated
institution ceases to be well capitalized under 12 CFR 208.43 or exceeds
the 15 percent capital limitation provided in paragraph (h)(2) of
this section, the capital treatment under paragraph (h)(1) of this
section will continue to apply to any transfers of small-business
obligations with retained contractual exposure that occurred during
the time that the Board-regulated institution was well capitalized
and did not exceed the capital limit.
(4) The risk-based capital ratios of the
Board-regulated institution must be calculated without regard to the
capital treatment for transfers of small-business obligations specified
in paragraph (h)(1) of this section for purposes of:
(i) Determining
whether a Board-regulated institution is adequately capitalized, undercapitalized,
significantly undercapitalized, or critically undercapitalized under
the Board’s prompt corrective action regulations; and
(ii) Reclassifying a well-capitalized
Board-regulated institution to adequately capitalized and requiring
an adequately capitalized Board-regulated institution to comply with
certain mandatory or discretionary supervisory actions as if the Board-regulated
institution were in the next lower prompt-corrective-action category.
(i) Nth-to-default credit derivatives.
(1) Protection
provider. A Board-regulated institution may assign a risk weight
using the SSFA in section 217.43 to an nth-to-default credit
derivative in accordance with this paragraph (i). A Board-regulated
institution must determine its exposure in the nth-to-default
credit derivative as the largest notional amount of all the underlying
exposures.
(2) For purposes
of determining the risk weight for an nth-to-default credit
derivative using the SSFA, the Board-regulated institution must calculate
the attachment point and detachment point of its exposure as follows:
(i) The attachment point (parameter A) is the ratio of the sum of
the notional amounts of all underlying exposures that are subordinated
to the Board-regulated institution’s exposure to the total notional
amount of all underlying exposures. The ratio is expressed as a decimal
value between zero and one. In the case of a first-to-default credit
derivative, there are no underlying exposures that are subordinated
to the Board-regulated institution’s exposure. In the case of a second-or-subsequent-to-default
credit derivative, the smallest (n-1) notional amounts of the underlying
exposure(s) are subordinated to the Board-regulated institution’s
exposure.
(ii) The
detachment point (parameter D) equals the sum of parameter A plus
the ratio of the notional amount of the Board-regulated institution’s
exposure in the nth-to-default credit derivative to the
total notional amount of all underlying exposures. The ratio is expressed
as a decimal value between zero and one.
(3) A Board-regulated institution
that does not use the SSFA to determine a risk weight for its nth-to-default credit derivative must assign a risk weight of
1,250 percent to the exposure.
(4) Protection
purchaser.
(i) First-to-default
credit derivatives. A Board-regulated institution that obtains
credit protection on a group of underlying exposures through a first-to-default
credit derivative that meets the rules of recognition of section 217.36(b)
must determine its risk-based capital requirement for the underlying
exposures as if the Board-regulated institution synthetically securitized
the underlying exposure with the smallest risk-weighted asset amount
and had obtained no credit risk mitigant on the other underlying exposures.
A Board-regulated institution must calculate a risk-based capital
requirement for counterparty credit risk according to section 217.34
for a first-to-default credit derivative that does not meet the rules
of recognition of section 217.36(b).
(ii) Second-or-subsequent-to-default
credit derivatives.
(A) A Board-regulated institution that obtains
credit protection on a group of underlying exposures through a nth-to-default credit derivative that meets the rules of recognition
of section 217.36(b) (other than a first-to-default credit derivative)
may recognize the credit risk mitigation benefits of the derivative
only if:
(1) The Board-regulated
institution also has obtained credit protection on the same underlying
exposures in the form of first-through-(n-1)-to-default credit derivatives;
or
(2) If n-1
of the underlying exposures have already defaulted.
(B) If a Board-regulated institution
satisfies the requirements of paragraph (i)(4)(ii)(A) of this section,
the Board-regulated institution must determine its risk-based capital
requirement for the underlying exposures as if the Board-regulated
institution had only synthetically securitized the underlying exposure
with the nth smallest risk-weighted asset amount and had
obtained no credit risk mitigant on the other underlying exposures.
(C) A Board-regulated institution
must calculate a risk-based capital requirement for counterparty credit
risk according to section 217.34 for a nth-to-default credit
derivative that does not meet the rules of recognition of section
217.36(b).
(j) Guarantees and credit derivatives other
than nth-to-default credit derivatives.
(1) Protection
provider. For a guarantee or credit derivative (other than an
nth-to-default credit derivative) provided by a Board-regulated
institution that covers the full amount or a pro rata share of a securitization
exposure’s principal and interest, the Board-regulated institution
must risk weight the guarantee or credit derivative as if it holds
the portion of the reference exposure covered by the guarantee or
credit derivative.
(2) Protection purchaser.
(i) A Board-regulated
institution that purchases a guarantee or OTC credit derivative (other
than an nth-to-default credit derivative) that is recognized
under section 217.45 as a credit risk mitigant (including via collateral
recognized under section 217.37) is not required to compute a separate
counterparty credit risk capital requirement under section 217.31,
in accordance with 34(c).
(ii) If a Board-regulated institution
cannot, or chooses not to, recognize a purchased credit derivative
as a credit risk mitigant under section 217.45, the Board-regulated
institution must determine the exposure amount of the credit derivative
under section 217.34.
(A) If the Board-regulated institution purchases
credit protection from a counterparty that is not a securitization
SPE, the Board-regulated institution must determine the risk weight
for the exposure according to this subpart D.
(B) If the Board-regulated institution
purchases the credit protection from a counterparty that is a securitization
SPE, the Board-regulated institution must determine the risk weight
for the exposure according to section 217.42, including section 217.42(a)(4)
for a credit derivative that has a first priority claim on the cash
flows from the underlying exposures of the securitization SPE (notwithstanding
amounts due under interest rate or currency derivative contracts,
fees due, or other similar payments).
