(a) Available approaches.
(1) Unless the exposure meets the requirements
for a community development equity exposure in section 217.152(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 in paragraph (b) of this section, the simple
modified look-through approach in paragraph (c) of this section, or
the alternative modified look-through approach in paragraph (d) of
this section.
(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 217.152(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 may use the ineffective portion of the hedge pair as determined
under section 217.152(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 E of this part as if the proportional ownership
share of each exposure were held directly by the Board-regulated institution)
may either:
(1) Set the risk-weighted
asset amount of the Board-regulated institution’s exposure to the
fund equal to the product of:
(i) 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
(ii) The Board-regulated institution’s
proportional ownership share of the fund; or
(2) Include the Board-regulated
institution’s proportional ownership share of each exposure held by
the fund in the Board-regulated institution’s IMA.
(c) Simple modified look-through
approach. Under this 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 assigned according to subpart D of this
part that applies to any exposure the fund is permitted to hold under
its prospectus, partnership agreement, or similar contract 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 this 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 assigned according to subpart D of this part 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 class multiplied
by the applicable risk weight. 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 risk weight under subpart D of this part, and continues to
make investments in order of the exposure type with the next highest
risk weight under subpart D of this part 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.
