(a) In general.
(1) This section applies
to a covered foreign entity, except as provided in paragraph (a)(1)(i)
of this section.
(i) Until January 1, 2021, this section does not apply to a U.S.
intermediate holding company that is a covered foreign entity with
less than $250 billion in total consolidated assets as of December
31, 2019, provided that:
(A) In order to avoid evasion of this subpart, the Board may determine,
after notice to the covered foreign entity and opportunity for hearing,
that a U.S. intermediate holding company with less than $250 billion
in total consolidated assets must apply either the approach in this
paragraph (a) or the look-through approach in paragraph (b) of this
section, or must recognize exposures to a third party that has a contractual
obligation to provide credit or liquidity support to a securitization
vehicle, investment fund, or other special purpose vehicle that is
not an affiliate of the covered foreign entity, as provided in paragraph
(c) of this section; and
(B) For purposes
of paragraph (a)(1)(i)(A) of this section, the Board, in its discretion
and as applicable, may allow a covered foreign entity to measure its
capital base using the covered foreign entity’s capital stock and
surplus rather than its tier 1 capital.
(2) For purposes of this section, the
following definitions apply:
(i) SPV means a securitization
vehicle, investment fund, or other special purpose vehicle that is
not an affiliate of the covered foreign entity.
(ii) SPV exposure means an investment
in the debt or equity of an SPV or a credit derivative or equity derivative
between the covered foreign entity and a third party where the covered
foreign entity is the protection provider and the reference asset
is an obligation or equity security of, or equity investment in, an
SPV.
(3) (i) A covered foreign entity must determine whether the amount
of its gross credit exposure to an issuer of assets in an SPV, due
to an SPV exposure, is equal to or greater than 0.25 percent of the
covered foreign entity’s tier 1 capital using one of the following
two methods:
(A) The
sum of all of the issuer’s assets (with each asset valued in accordance
with section 252.173(a)) in the SPV; or
(B) The application of the look-through approach described in paragraph
(b) of this section.
(ii) With respect to the determination required under paragraph (a)(3)(i)
of this section, a covered foreign entity must use the same method
to calculate gross credit exposure to each issuer of assets in a particular
SPV.
(iii) In making a determination
under paragraph (a)(3)(i) of this section, the covered foreign entity
must consider only the credit exposure to the issuer arising from
the covered foreign entity’s SPV exposure.
(iv) For purposes of this paragraph
(a)(3), a covered foreign entity that is unable to identify each issuer
of assets in an SPV must attribute to a single unknown counterparty
the amount of its gross credit exposure to all unidentified issuers
and calculate such gross credit exposure using one method in either
paragraph (a)(3)(i)(A) or (B) of this section.
(4) (i) If a covered foreign
entity determines pursuant to paragraph (a)(3) of this section that
the amount of its gross credit exposure to an issuer of assets in
an SPV is less than 0.25 percent of the covered foreign entity’s tier
1 capital, the amount of the covered foreign entity’s gross credit
exposure to that issuer may be attributed to either that issuer of
assets or the SPV:
(A)
If attributed to the issuer of assets, the issuer of assets must be
identified as a counterparty, and the gross credit exposure calculated
under paragraph (a)(3)(i)(A) of this section to that issuer of assets
must be aggregated with any other gross credit exposures (valued in
accordance with section 252.173) to that same counterparty; and
(B) If attributed to the SPV, the covered
foreign entity’s gross credit exposure is equal to the covered foreign
entity’s SPV exposure, valued in accordance with section 252.173(a).
(ii) If a covered
foreign entity determines pursuant to paragraph (a)(3) of this section
that the amount of its gross credit exposure to an issuer of assets
in an SPV is equal to or greater than 0.25 percent of the covered
foreign entity’s tier 1 capital or the covered foreign entity is unable
to determine that the amount of the gross credit exposure is less
than 0.25 percent of the covered foreign entity’s tier 1 capital:
(A) The covered foreign
entity must calculate the amount of its gross credit exposure to the
issuer of assets in the SPV using the look-through approach in paragraph
(b) of this section;
(B) The issuer
of assets in the SPV must be identified as a counterparty, and the
gross credit exposure calculated in accordance with paragraph (b)
must be aggregated with any other gross credit exposures (valued in
accordance with section 252.173) to that same counterparty; and
(C) When applying the look-through approach
in paragraph (b) of this section, a covered foreign entity that is
unable to identify each issuer of assets in an SPV must attribute
to a single unknown counterparty the amount of its gross credit exposure,
calculated in accordance with paragraph (b) of this section, to all
unidentified issuers.
(iii) For purposes of this section,
a covered foreign entity must aggregate all gross credit exposures
to unknown counterparties for all SPVs as if the exposures related
to a single unknown counterparty; this single unknown counterparty
is subject to the limits of section 252.172 as if it were a single
counterparty.
(b) Look-through approach. A covered foreign
entity that is required to calculate the amount of its gross credit
exposure with respect to an issuer of assets in accordance with this
paragraph (b) must calculate the amount as follows:
(1) Where all investors in the SPV rank pari passu, the amount of the gross credit exposure to the issuer
of assets is equal to the covered foreign entity’s pro rata share
of the SPV multiplied by the value of the underlying asset in the
SPV, valued in accordance with section 252.173(a); and
(2) Where all investors in the SPV do not
rank pari passu, the amount of the gross credit exposure to
the issuer of assets is equal to:
(i) The pro rata share of the covered
foreign entity’s investment in the tranche of the SPV; multiplied
by
(ii) The lesser of:
(A) The market value of
the tranche in which the covered foreign entity has invested, except
in the case of a debt security that is held to maturity, in which
case the tranche must be valued at the amortized purchase price of
the securities; and
(B) The value of
each underlying asset attributed to the issuer in the SPV, each
as calculated pursuant to section 252.173(a).
(c) Exposures to third parties.
(1) Notwithstanding
any other requirement in this section, a covered foreign entity must
recognize, for purposes of this subpart, a gross credit exposure to
each third party that has a contractual obligation to provide credit
or liquidity support to an SPV whose failure or material financial
distress would cause a loss in the value of the covered foreign entity’s
SPV exposure.
(2) The amount of
any gross credit exposure that is required to be recognized to a third
party under paragraph (c)(1) of this section is equal to the covered
foreign entity’s SPV exposure, up to the maximum contractual obligation
of that third party to the SPV, valued in accordance with section
252.173(a). (This gross credit exposure is in addition to the covered
foreign entity’s gross credit exposure to the SPV or the issuers of
assets of the SPV, calculated in accordance with paragraphs (a) and
(b) of this section.)
(3) A covered
foreign entity must aggregate the gross credit exposure to a third
party recognized in accordance with paragraphs (c)(1) and (2) of this
section with its other gross credit exposures to that third party
(that are unrelated to the SPV) for purposes of compliance with the
limits of section 252.172.
