(a) In general. For purposes
of this subpart, a covered company must calculate its net credit exposure
to a counterparty by adjusting its gross credit exposure to that counterparty
in accordance with the rules set forth in this section.
(b) Eligible collateral.
(1) In computing its net credit exposure
to a counterparty for any credit transaction other than a securities
financing transaction, a covered company must reduce its gross credit
exposure on the transaction by the adjusted market value of any eligible
collateral.
(2) A covered company
that reduces its gross credit exposure to a counterparty as required
under paragraph (b)(1) of this section must include the adjusted market
value of the eligible collateral, when calculating its gross credit
exposure to the collateral issuer.
(3) Notwithstanding paragraph (b)(2) of this section, a covered company’s
gross credit exposure to a collateral issuer under this paragraph
(b) is limited to:
(i) Its gross credit exposure to the counterparty on the credit transaction,
or
(ii) In the case of an exempt
counterparty, the gross credit exposure that would have been attributable
to that exempt counterparty on the credit transaction if valued in
accordance with section 238.153(a).
(c) Eligible guarantees.
(1) In calculating net
credit exposure to a counterparty for any credit transaction, a covered
company must reduce its gross credit exposure to the counterparty
by the amount of any eligible guarantee from an eligible guarantor
that covers the transaction.
(2)
A covered company that reduces its gross credit exposure to a counterparty
as required under paragraph (c)(1) of this section must include the
amount of eligible guarantees when calculating its gross credit exposure
to the eligible guarantor.
(3) Notwithstanding
paragraph (c)(2) of this section, a covered company’s gross credit
exposure to an eligible guarantor with respect to an eligible guarantee
under this paragraph (c) is limited to:
(i) Its gross credit exposure to the
counterparty on the credit transaction prior to recognition of the
eligible guarantee, or
(ii) In
the case of an exempt counterparty, the gross credit exposure that
would have been attributable to that exempt counterparty on the credit
transaction prior to recognition of the eligible guarantee if valued
in accordance with section 238.153(a).
(d) Eligible credit and equity derivatives.
(1) In calculating net
credit exposure to a counterparty for a credit transaction under this
section, a covered company must reduce its gross credit exposure to
the counterparty by:
(i) In the case of any eligible credit derivative from an eligible
guarantor, the notional amount of the eligible credit derivative;
or
(ii) In the case of any eligible
equity derivative from an eligible guarantor, the gross credit exposure
amount to the counterparty (calculated in accordance with section
238.153(a)(7)).
(2) (i) A covered company that
reduces its gross credit exposure to a counterparty as provided under
paragraph (d)(1) of this section must include, when calculating its
net credit exposure to the eligible guarantor, including in instances
where the underlying credit transaction would not be subject to the
credit limits of section 238.152 (for example, due to an exempt counterparty),
either
(A) In the case
of any eligible credit derivative from an eligible guarantor, the
notional amount of the eligible credit derivative; or
(B) In the case of any eligible equity derivative
from an eligible guarantor, the gross credit exposure amount to the
counterparty (calculated in accordance with section 238.153(a)(7)).
(ii) Notwithstanding
paragraph (d)(2)(i) of this section, in cases where the eligible credit
derivative or eligible equity derivative is used to hedge covered
positions that are subject to the Board’s market risk rule (12 CFR
part 217, subpart F) and the counterparty on the hedged transaction
is not a financial entity, the amount of credit exposure that a company
must recognize to the eligible guarantor is the amount that would
be calculated pursuant to section 238.153(a).
(3) Notwithstanding paragraph (d)(2) of
this section, a covered company’s gross credit exposure to an eligible
guarantor with respect to an eligible credit derivative or an eligible
equity derivative this paragraph (d) is limited to:
(i) Its gross credit exposure to
the counterparty on the credit transaction prior to recognition of
the eligible credit derivative or the eligible equity derivative,
or
(ii) In the case of an exempt
counterparty, the gross credit exposure that would have been attributable
to that exempt counterparty on the credit transaction prior to recognition
of the eligible credit derivative or the eligible equity derivative
if valued in accordance with section 238.153(a).
(e) Other eligible hedges. In calculating net credit exposure to a counterparty for a credit
transaction under this section, a covered company may reduce its gross
credit exposure to the counterparty by the face amount of a short
sale of the counterparty’s debt security or equity security, provided
that:
(1) The instrument
in which the covered company has a short position is junior to, or pari passu with, the instrument in which the covered company
has the long position; and
(2) The
instrument in which the covered company has a short position and the
instrument in which the covered company has the long position are
either both treated as trading or available-for-sale exposures or
both treated as held-to-maturity exposures.
(f) Unused portion of certain extensions of credit.
(1) In computing its
net credit exposure to a counterparty for a committed credit line
or revolving credit facility under this section, a covered company
may reduce its gross credit exposure by the amount of the unused portion
of the credit extension to the extent that the covered company does
not have any legal obligation to advance additional funds under the
extension of credit and the used portion of the credit extension has
been fully secured by eligible collateral.
(2) To the extent that the used portion
of a credit extension has been secured by eligible collateral, the
covered company may reduce its gross credit exposure by the ad justed
market value of any eligible collateral received from the counterparty,
even if the used portion has not been fully secured by eligible collateral.
(3) To qualify for the reduction in
net credit exposure under this paragraph, the credit contract must
specify that any used portion of the credit extension must be fully
secured by the adjusted market value of any eligible collateral.
(g) Credit transactions involving
exempt counterparties.
(1) A covered company’s credit transactions with an exempt counterparty
are not subject to the requirements of this subpart, including but
not limited to section 238.152.
(2) Notwithstanding paragraph (g)(1) of this section, in cases where
a covered company has a credit transaction with an exempt counterparty
and the covered company has obtained eligible collateral from that
exempt counterparty or an eligible guarantee or eligible credit or
equity derivative from an eligible guarantor, the covered company
must include (for purposes of this subpart) such exposure to the issuer
of such eligible collateral or the eligible guarantor, as calculated
in accordance with the rules set forth in this section, when calculating
its gross credit exposure to that issuer of eligible collateral or
eligible guarantor.
(h) Currency mismatch adjustments. For purposes of calculating its
net credit exposure to a counterparty under this section, a covered
company must apply, as applicable:
(1) When reducing its gross credit exposure
to a counterparty resulting from any credit transaction due to any
eligible collateral and calculating its gross credit exposure to an
issuer of eligible collateral, pursuant to paragraph (b) of this section,
the currency mismatch adjustment approach of section 217.37(c)(3)(ii)
of this chapter; and
(2) When reducing
its gross credit exposure to a counterparty resulting from any credit
transaction due to any eligible guarantee, eligible equity derivative,
or eligible credit derivative from an eligible guarantor and calculating
its gross credit exposure to an eligible guarantor, pursuant to paragraphs
(c) and (d) of this section, the currency mismatch adjustment approach
of section 217.36(f) of this chapter.
(i) Maturity mismatch adjustments. For purposes
of calculating its net credit exposure to a counterparty under this
section, a covered company must apply, as applicable, the maturity
mismatch adjustment approach of section 217.36(d) of this chapter:
(1) When reducing its gross
credit exposure to a counterparty resulting from any credit transaction
due to any eligible collateral or any eligible guarantees, eligible
equity derivatives, or eligible credit derivatives from an eligible
guarantor, pursuant to paragraphs (b) through (d) of this section,
and
(2) In calculating its gross
credit exposure to an issuer of eligible collateral, pursuant to paragraph
(b) of this section, or to an eligible guarantor, pursuant to paragraphs
(c) and (d) of this section; provided that
(3) The eligible collateral, eligible guarantee,
eligible equity derivative, or eligible credit derivative subject
to paragraph (i)(1) of this section:
(i) Has a shorter maturity than the
credit transaction;
(ii) Has
an original maturity equal to or greater than one year;
(iii) Has a residual maturity of not
less than three months; and
(iv)
The adjustment approach is otherwise applicable.
