(a) Eligibility requirements. A Board-regulated institution must
use the SFA to determine its risk-weighted asset amount for a securitization
exposure if the Board-regulated institution can calculate on an ongoing
basis each of the SFA parameters in paragraph (e) of this section.
(b) Mechanics. The
risk-weighted asset amount for a securitization exposure equals its
SFA risk-based capital requirement as calculated under paragraph (c)
and (d) of this section, multiplied by 12.5.
(c) The SFA risk-based capital requirement.
(1) If KIRB is greater
than or equal to L+T, an exposure’s SFA risk-based capital requirement
equals the exposure amount.
(2) If KIRB is less than or
equal to L, an exposure’s SFA risk-based capital requirement is UE
multiplied by TP multiplied by the greater of:
(i) F •
T (where F is 0.016 for all securitization exposures); or
(ii) S[L + T] − S[L].
(3) If KIRB is greater than L and less than L +T, the Board-regulated
institution must apply a 1,250 percent risk weight to an amount equal
to UE • TP • (KIRB − L), and the exposure’s SFA risk-based
capital requirement is UE multiplied by TP multiplied by the greater
of:
(i) F • (T − (KIRB − L))
(where F is 0.016 for all other securitization exposures); or
(ii) S[L + T] − S[KIRB].
(d) The supervisory formula:
(1)
Figure 1. DISPLAY EQUATION
$$
S[Y] =
\begin{Bmatrix}
& Y & when \; Y \leq K_{IRB} \\
& K_{IRB} + K[Y] - K[K_{IRB}] + \frac{d \cdot K_{IRB}}{20} (1-e^{\frac{20(K_{IRB}-Y)}{K_{IRB}}})
& when \; Y > K_{IRB}
\end{Bmatrix}
$$
(2) K[Y]=(1− h)•[(1−β[Y;a,b ])• Y +β[Y;a+1, b]• c]
(3)
Figure 2. DISPLAY EQUATION
$$
h= \Big \lgroup 1 - \frac{K_{IRB}}{EWALGD} \Big \rgroup^N
$$
(4) a = g • c
(5) b = g • (1 − c)
(6)
Figure 3. DISPLAY EQUATION
$$
c = \frac{K_{IRB}}{1-h}
$$
(7)
Figure 4. DISPLAY EQUATION
$$
g = \frac{(1-c) \cdot c}{f} - 1
$$
(8)
Figure 5. DISPLAY EQUATION
$$
f = \frac{v+ {K_{IRB}}^2}{1-h} - c^2 + \frac{(1-K_{IRB}) \cdot K_{IRB} -v}{(1-h) \cdot 1000}
$$
(9)
Figure 6. DISPLAY EQUATION
$$
v = K_{IRB} \cdot \frac{(EWALGD - K_{IRB}) + .25 \cdot (1-EWALGD)}{N}
$$
(10) d=1−(1−h )•(1−β[K IRB ;a,b ]).
(11) In these expressions, β[Y; a, b] refers
to the cumulative beta distribution with parameters a and b evaluated
at Y. In the case where N = 1 and EWALGD = 100 percent, S[Y] in formula
(1) must be calculated with K[Y] set equal to the product of KIRB and Y, and d set equal to 1−KIRB.
(e) SFA
parameters. For purposes of the calculations in paragraphs (c)
and (d) of this section:
(1) Amount of
the underlying exposures (UE). UE is the EAD of any underlying
exposures that are wholesale and retail exposures (including the amount
of any funded spread accounts, cash collateral accounts, and other
similar funded credit enhancements) plus the amount of any underlying
exposures that are securitization exposures (as defined in section
217.142(e)) plus the adjusted carrying value of any underlying exposures
that are equity exposures (as defined in section 217.151(b)).
(2) Tranche percentage (TP). TP is the ratio of the amount of the
Board-regulated institution’s securitization exposure to the amount
of the tranche that contains the securitization exposure.
(3) Capital requirement on underlying exposures (KIRB).
(i) KIRB is the ratio of:
(A) The sum of the risk-based capital requirements for the underlying
exposures plus the expected credit losses of the underlying exposures
(as determined under this subpart E as if the underlying exposures
were directly held by the Board-regulated institution); to
(B) UE.
(ii) The calculation of
KIRB must reflect the effects of any credit risk mitigant
applied to the underlying exposures (either to an individual underlying
exposure, to a group of underlying exposures, or to all of the underlying
exposures).
(iii)
All assets related to the securitization are treated as underlying
exposures, including assets in a reserve account (such as a cash collateral
account).
(4) Credit enhancement level (L).
(i) L is the ratio of:
(A) The amount of all securitization exposures
subordinated to the tranche that contains the Board-regulated institution’s
securitization exposure; to
(B) UE.
(ii) A Board-regulated institution must
determine L before considering the effects of any tranche-specific
credit enhancements.
(iii) Any gain-on-sale or CEIO associated with the securitization
may not be included in L.
(iv) Any reserve account funded by accumulated
cash flows from the underlying exposures that is subordinated to the
tranche that contains the Board-regulated institution’s securitization
exposure may be included in the numerator and denominator of L to
the extent cash has accumulated in the account. Unfunded reserve accounts
(that is, reserve accounts that are to be funded from future cash
flows from the underlying exposures) may not be included in the calculation
of L.
(v) In some
cases, the purchase price of receivables will reflect a discount that
provides credit enhancement (for example, first loss protection) for
all or certain tranches of the securitization. When this arises, L
should be calculated inclusive of this discount if the discount provides
credit enhancement for the securitization exposure.
(5) Thickness of tranche (T). T is the ratio
of:
(i) The amount of the tranche that contains
the Board-regulated institution’s securitization exposure; to
(ii) UE.
(6) Effective number of exposures (N).
(i) Unless the Board-regulated institution elects to use the formula
provided in paragraph (f) of this section,
Figure 7. DISPLAY EQUATION
$$
N = \frac{({\sum\limits_i}EAD_i)^2}{{\sum\limits_i}EAD^2_i}
$$
where EADi represents the EAD associated
with the ith instrument in the underlying exposures.
(ii) Multiple exposures
to one obligor must be treated as a single underlying exposure.
(iii) In the case of
a resecuritization, the Board-regulated institution must treat each
underlying exposure as a single underlying exposure and must not look
through to the originally securitized underlying exposures.
(7)
Exposure-weighted average loss given default
(EWALGD). EWALGD is calculated as:
Figure 8. DISPLAY EQUATION
$$
EWALGD = \frac{{\sum\limits_i}LGD_i \cdot EAD_i}{{\sum\limits_i}EAD_i}
$$
where
LGDi represents the average LGD associated with all exposures
to the ith obligor. In the case of a resecuritization,
an LGD of 100 percent must be assumed for the underlying exposures
that are themselves securitization exposures.
(f) Simplified method for computing
N and EWALGD.
(1) If all underlying exposures of a securitization
are retail exposures, a Board-regulated institution may apply the
SFA using the following simplifications:
(i) h = 0; and
(ii) v = 0.
(2) Under the conditions
in sections 217.143(f)(3) and (f)(4), a Board-regulated institution
may employ a simplified method for calculating N and EWALGD.
(3) If C1 is no
more than 0.03, a Board-regulated institution may set EWALGD = 0.50
if none of the underlying exposures is a securitization exposure,
or may set EWALGD = 1 if one or more of the underlying exposures is
a securitization exposure, and may set N equal to the following amount:
N =
Figure 9. DISPLAY EQUATION
$$
N = \frac{1}
{C_1C_m + \Bigg \lgroup \frac{C_m - C_1}{m-1} \Bigg \rgroup \text{max}(1-mC_1,0)}
$$
where:
(i) Cm is the ratio of the sum of the amounts of the ‘m’
largest underlying exposures to UE; and
(ii) The level of m is to be selected
by the Board-regulated institution.
(4) Alternatively, if only C1 is available and C1 is no more than 0.03, the Board regulated
institution may set EWALGD = 0.50 if none of the underlying exposures
is a securitization exposure, or may set EWALGD = 1 if one or more
of the underlying exposures is a securitization exposure and may set
N = 1/C1.
