(a) Available
approaches.
(1) Unless
the exposure meets the requirements for a community development equity
exposure under section 217.52(b)(3)(i), a Board-regulated institution
must determine the risk-weighted asset amount of an equity exposure
to an investment fund under the full look-through approach described
in paragraph (b) of this section, the simple modified look-through
approach described in paragraph (c) of this section, or the alterative
modified look-through approach described paragraph (d) of this section,
provided, however, that the minimum risk weight that may be assigned
to an equity exposure under this section is 20 percent.
(2) The risk-weighted asset amount of an
equity exposure to an investment fund that meets the requirements
for a community development equity exposure in section 217.52(b)(3)(i)
is its adjusted carrying value.
(3) If an equity exposure to an investment fund is part of a hedge
pair and the Board-regulated institution does not use the full look-through
approach, the Board-regulated institution must use the ineffective
portion of the hedge pair as determined under section 217.52(c) as
the adjusted carrying value for the equity exposure to the investment
fund. The risk-weighted asset amount of the effective portion of the
hedge pair is equal to its adjusted carrying value.
(b) Full look-through approach. A Board-regulated institution that is able to calculate a risk-weighted
asset amount for its proportional ownership share of each exposure
held by the investment fund (as calculated under this subpart as if
the proportional ownership share of the adjusted carrying value of
each exposure were held directly by the Board-regulated institution)
may set the risk-weighted asset amount of the Board-regulated institution’s
exposure to the fund equal to the product of:
(1) The aggregate risk-weighted asset amounts
of the exposures held by the fund as if they were held directly by
the Board-regulated institution; and
(2) The Board-regulated institution’s proportional ownership share
of the fund.
(c) Simple
modified look-through approach. Under the simple modified look-through
approach, the risk-weighted asset amount for a Board-regulated institution’s
equity exposure to an investment fund equals the adjusted carrying
value of the equity exposure multiplied by the highest risk weight
that applies to any exposure the fund is permitted to hold under the
prospectus, partnership agreement, or similar agreement that defines
the fund’s permissible investments (excluding derivative contracts
that are used for hedging rather than speculative purposes and that
do not constitute a material portion of the fund’s exposures).
(d) Alternative modified
look-through approach. Under the alternative modified look-through
approach, a Board-regulated institution may assign the adjusted carrying
value of an equity exposure to an investment fund on a pro rata basis
to different risk weight categories under this subpart based on the
investment limits in the fund’s prospectus, partnership agreement,
or similar contract that defines the fund’s permissible investments.
The risk-weighted asset amount for the Board-regulated institution’s
equity exposure to the investment fund equals the sum of each portion
of the adjusted carrying value assigned to an exposure type multiplied
by the applicable risk weight under this subpart. If the sum of the
investment limits for all exposure types within the fund exceeds 100
percent, the Board-regulated institution must assume that the fund
invests to the maximum extent permitted under its investment limits
in the exposure type with the highest applicable risk weight under
this subpart and continues to make investments in order of the exposure
type with the next highest applicable risk weight under this subpart
until the maximum total investment level is reached. If more than
one exposure type applies to an exposure, the Board-regulated institution
must use the highest applicable risk weight. A Board-regulated institution
may exclude derivative contracts held by the fund that are used for
hedging rather than for speculative purposes and do not constitute
a material portion of the fund’s exposures.
