Unless defined in this section, terms that
are set forth in section 252.2 of this part and used in this subpart
have the definitions assigned in section 252.2. For purposes of this
subpart:
(a) Adjusted market value means:
(1) With respect to the value of cash,
securities, or other eligible collateral transferred by the covered
foreign entity to a counterparty, the sum of:
(i) The market value of the cash, securities,
or other eligible collateral; and
(ii) The product of the market value of the securities or other eligible
collateral multiplied by the applicable collateral haircut in Table
1 to section 217.132 of the Board’s Regulation Q (12 CFR 217.132);
and
(2) With respect
to cash, securities, or other eligible collateral received by the
covered foreign entity from a counterparty:
(i) The market value of the cash, securities,
or other eligible collateral; minus
(ii) The market value of the securities
or other eligible collateral multiplied by the applicable collateral
haircut in Table 1 to section 217.132 of the Board’s Regulation Q
(12 CFR 217.132).
(3)
Prior to calculating the adjusted market value pursuant to paragraphs
(1) and (2) of this section, with regard to a transaction that meets
the definition of “repo-style transaction” in section 217.2 of the
Board’s Regulation Q (12 CFR 217.2), the covered foreign entity would
first multiply the applicable collateral haircuts in Table 1 to section
217.132 of the Board’s Regulation Q (12 CFR 217.132) by the square
root of½.
(b) Affiliate means, with respect
to a company:
(1) Any subsidiary
of the company and any other company that is consolidated with the
company under applicable accounting standards; or
(2) For a company that is not subject to
principles or standards referenced in paragraph (b)(1) of this section,
any subsidiary of the company and any other company that would be
consolidated with the company, if consolidation would have occurred
if such principles or standards had applied.
(c) Aggregate net credit exposure means the sum of all net credit
exposures of a covered foreign entity and all of its subsidiaries
to a single counterparty as calculated under this subpart.
(d) Bank-eligible investments means investment securities
that a national bank is permitted to purchase, sell, deal in, underwrite,
and hold under 12 U.S.C. 24 (Seventh) and 12 CFR part 1.
(e) Capital stock and surplus means, with respect to a U.S. intermediate
holding company, the sum of the following amounts in each case as
reported by the U.S. intermediate holding company on the most recent
FR Y-9C on a consolidated basis:
(1) The tier 1 capital and tier 2 capital
of the U.S. intermediate holding company, as calculated under the
capital adequacy guidelines applicable to that U.S. intermediate holding
company under subpart O of the Board’s Regulation YY (12 CFR part
252, subpart O); and
(2) The excess
allowance for loan and lease losses of the U.S. intermediate holding
company not included in its tier 2 capital, as calculated under the
capital adequacy guidelines applicable to that U.S. intermediate holding
company under subpart O of the Board’s Regulation YY (12 CFR part
252, subpart O).
(f) Counterparty means with
respect to a credit transaction:
(1) With respect to a natural person:
(i) The natural person;
(ii) Except as provided in paragraph
(f)(1)(iii) of this section, if the credit exposure of the covered
foreign entity to such natural person exceeds 5 percent of tier 1
capital, the natural person and members of the person’s immediate
family collectively; and
(iii)
Until January 1, 2021, with respect to a U.S. intermediate holding
company that is a covered foreign entity and that has less than $250
billion in total consolidated assets as of December 31, 2019, if the
credit exposure of the U.S. intermediate holding company to such natural
person exceeds 5 percent of its capital stock and surplus, the natural
person and member of the person’s immediately family collectively.
(2) With respect to any
company that is not an affiliate of the covered foreign entity, the
company and its affiliates collectively;
(3) With respect to a State, the State
and all of its agencies, instrumentalities, and political subdivisions
(including any municipalities) collectively;
(4) With respect to a foreign sovereign
entity that is not assigned a zero percent risk weight under the standardized
approach in the Board’s Regulation Q (12 CFR part 217, subpart D),
other than the home country foreign sovereign entity of a foreign
banking organization, the foreign sovereign entity and all of its
agencies and instrumentalities (but not including any political subdivision),
collectively; and
(5) With respect
to a political subdivision of a foreign sovereign entity such as a
state, province, or municipality, any political subdivision of the
foreign sovereign entity and all of such political subdivision’s agencies
and instrumentalities, collectively.
3(g) Covered foreign entity is defined in section
252.170(a)(2)(i) of this subpart.
(h) Credit derivative has the same meaning as in section 217.2 of the Board’s Regulation
Q (12 CFR 217.2).
(i) Credit transaction means, with
respect to a counterparty:
(1) Any extension of credit to the counterparty, including loans,
deposits, and lines of credit, but excluding uncommitted lines of
credit;
(2) Any repurchase agreement
or reverse repurchase agreement with the counterparty;
(3) Any securities lending or securities
borrowing transaction with the counterparty;
(4) Any guarantee, acceptance, or letter
of credit (including any endorsement, confirmed letter of credit,
or standby letter of credit) issued on behalf of the counterparty;
(5) Any purchase of securities issued
by or other investment in the counterparty;
(6) Any credit exposure to the counterparty
in connection with a derivative transaction between the covered foreign
entity and the counterparty;
(7)
Any credit exposure to the counterparty in connection with a credit
derivative or equity derivative between the covered foreign entity
and a third party, the reference asset of which is an obligation or
equity security of, or equity investment in, the counterparty; and
(8) Any transaction that is the functional
equivalent of the above, and any other similar transaction that the
Board, by regulation, determines to be a credit transaction for purposes
of this subpart.
(j) Depository institution has the same meaning as in section 3 of the Federal Deposit Insurance
Act (12 U.S.C. 1813(c)).
(k) Derivative transaction means
any transaction that is a contract, agreement, swap, warrant, note,
or option that is based, in whole or in part, on the value of, any
interest in, or any quantitative measure or the occurrence of any
event relating to, one or more commodities, securities, currencies,
interest or other rates, indices, or other assets.
(l) Eligible collateral means collateral in which, notwithstanding
the prior security interest of any custodial agent, the covered foreign
entity has a perfected, first priority security interest (or the legal
equivalent thereof, if outside of the United States), with the exception
of cash on deposit, and is in the form of:
(1) Cash on deposit with the covered foreign
entity or an affiliate of the covered foreign entity (including cash
in foreign currency or U.S. dollars held for the covered foreign entity
by a custodian or trustee, whether inside or outside of the United
States);
(2) Debt securities (other
than mortgage- or asset-backed securities and resecuritization securities,
unless those securities are issued by a U.S. government-sponsored
enterprise) that are bank-eligible investments and that are investment
grade, except for any debt securities issued by the covered foreign
entity or any affiliate of the covered foreign entity;
(3) Equity securities that are publicly
traded, except for any equity securities issued by the covered foreign
entity or any affiliate of the covered foreign entity;
(4) Convertible bonds that are publicly
traded, except for any convertible bonds issued by the covered foreign
entity or any affiliate of the covered foreign entity; or
(5) Gold bullion.
(m) Eligible credit derivative means a single-name credit derivative
or a standard, non-tranched index credit derivative, provided that:
(1) The contract meets the
requirements of an eligible guarantee and has been confirmed by the
protection purchaser and the protection provider;
(2) Any assignment of the contract has
been confirmed by all relevant parties;
(3) If the credit derivative is a credit
default swap, the contract includes the following credit events:
(i) Failure to pay
any amount due under the terms of the reference exposure, subject
to any applicable minimal payment threshold that is consistent with
standard market practice and with a grace period that is closely in
line with the grace period of the reference exposure; and
(ii) Receivership, insolvency, liquidation,
conservatorship, or inability of the reference exposure issuer to
pay its debts, or its failure or admission in writing of its inability
generally to pay its debts as they become due, and similar events;
(4) The terms and conditions
dictating the manner in which the contract is to be settled are incorporated
into the contract;
(5) If the contract
allows for cash settlement, the contract incorporates a robust valuation
process to estimate loss reliably and specifies a reasonable period
for obtaining post-credit event valuations of the reference exposure;
(6) If the contract requires the protection
purchaser to transfer an exposure to the protection provider at settlement,
the terms of at least one of the exposures that is permitted to be
transferred under the contract provide that any required consent to
transfer may not be unreasonably withheld; and
(7) If the credit derivative is a credit
default swap, the contract clearly identifies the parties responsible
for determining whether a credit event has occurred, specifies that
this determination is not the sole responsibility of the protection
provider, and gives the protection purchaser the right to notify the
protection provider of the occurrence of a credit event.
(n) Eligible equity derivative means an equity derivative,
provided that:
(1) The
derivative contract has been confirmed by all relevant parties;
(2) Any assignment of the derivative
contract has been confirmed by all relevant parties; and
(3) The terms and conditions dictating
the manner in which the derivative contract is to be settled are incorporated
into the contract.
(o) Eligible guarantee has
the same meaning as in section 217.2 of the Board’s Regulation Q (12
CFR 217.2).
(p) Eligible guarantor has the same meaning
as in section 217.2 of the Board’s Regulation Q (12 CFR 217.2), but
does not include the foreign banking organization or any entity that
is an affiliate of either the U.S. intermediate holding company or
of any part of the foreign banking organization’s combined U.S. operations.
(q) Equity derivative has the same meaning as “equity
derivative contract” in section 217.2 of the Board’s Regulation Q
(12 CFR 217.2).
(r) Exempt counterparty means an entity
that is identified as exempt from the requirements of this subpart
under section 252.177, or that is otherwise excluded from this subpart,
including any sovereign entity assigned a zero percent risk weight
under the standardized approach in the Board’s Regulation Q (12 CFR
part 217, subpart D).
(s) Financial entity means:
(1) (i)
A bank holding company or an affiliate thereof; a savings and loan
holding company as defined in section 10(n) of the Home Owners’ Loan
Act (12 U.S.C. 1467a(n)); a U.S. intermediate holding company established
or designated for purposes of compliance with this part; or a nonbank
financial company supervised by the Board;
(ii) A depository institution as defined
in section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c));
an organization that is organized under the laws of a foreign country
and that engages directly in the business of banking outside the United
States; a federal credit union or state credit union as defined in
section 2 of the Federal Credit Union Act (12 U.S.C. 1752(1) and (6));
a national association, state member bank, or state nonmember bank
that is not a depository institution; an institution that functions
solely in a trust or fiduciary capacity as described in section 2(c)(2)(D)
of the Bank Holding Company Act (12 U.S.C. 1841(c)(2)(D)); an industrial
loan company, an industrial bank, or other similar institution described
in section 2(c)(2)(H) of the Bank Holding Company Act (12 U.S.C. 1841(c)(2)(H));
(iii) An entity that is state-licensed
or registered as:
(A)
A credit or lending entity, including a finance company; money lender;
installment lender; consumer lender or lending company; mortgage lender,
broker, or bank; motor vehicle title pledge lender; payday or deferred
deposit lender; premium finance company; commercial finance or lending
company; or commercial mortgage company; except entities registered
or licensed solely on account of financing the entity’s direct sales
of goods or services to customers;
(B) A money services business, including a check casher; money transmitter;
currency dealer or exchange; or money order or traveler’s check issuer;
(iv) Any person
registered with the Commodity Futures Trading Commission as a swap
dealer or major swap participant pursuant to the Commodity Exchange
Act of 1936 (7 U.S.C. 1 et seq.), or an entity that is registered
with the U.S. Securities and Exchange Commission as a security-based
swap dealer or a major security-based swap participant pursuant to
the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.);
(v) A securities holding company
as defined in section 618 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (12 U.S.C. 1850a); a broker or dealer as defined
in sections 3(a)(4) and 3(a)(5) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(4)-(5)); an investment adviser as defined in
section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a));
an investment company registered with the U.S. Securities and Exchange
Commission under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.); or a company that has elected to be regulated as a
business development company pursuant to section 54(a) of the Investment
Company Act of 1940 (15 U.S.C. 80a-53(a));
(vi) A private fund as defined in section
202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a));
an entity that would be an investment company under section 3 of the
Investment Company Act of 1940 (15 U.S.C. 80a-3) but for section 3(c)(5)(C);
or an entity that is deemed not to be an investment company under
section 3 of the Investment Company Act of 1940 pursuant to Investment
Company Act Rule 3a-7 (17 CFR 270.3a-7) of the U.S. Securities and
Exchange Commission;
(vii) A
commodity pool, a commodity pool operator, or a commodity trading
advisor as defined, respectively, in sections 1a(10), 1a(11), and
1a(12) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(10), 1a(11),
and 1a(12)); a floor broker, a floor trader, or introducing broker
as defined, respectively, in sections 1a(22), 1a(23) and 1a(31) of
the Commodity Exchange Act of 1936 (7 U.S.C. 1a(22), 1a(23), and 1a(31));
or a futures commission merchant as defined in section 1a(28) of the
Commodity Exchange Act of 1936 (7 U.S.C. 1a(28));
(viii) An employee benefit plan as defined
in paragraphs (3) and (32) of section 3 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1002);
(ix) An entity that is organized as
an insurance company, primarily engaged in writing insurance or reinsuring
risks underwritten by insurance companies, or is subject to supervision
as such by a State insurance regulator or foreign insurance regulator;
(x) Any designated financial market
utility, as defined in section 803 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (12 U.S.C. 5462); and
(xi) An entity that would be a financial
entity described in paragraphs (s)(1)(i) through (x) of this section,
if it were organized under the laws of the United States or any State
thereof; and
(2) Provided
that, for purposes of this subpart, “financial entity” does not include
any counterparty that is a foreign sovereign entity or multilateral
development bank.
(t) Foreign sovereign entity means a sovereign entity other than the United States government
and the entity’s agencies, departments, ministries, and central bank.
(u) Gross credit exposure means, with respect to any credit
transaction, the credit exposure of the covered foreign entity before
adjusting, pursuant to section 252.174, for the effect of any qualifying
master netting agreement, eligible collateral, eligible guarantee,
eligible credit derivative, eligible equity derivative, other
eligible hedge, and any unused portion of certain extensions of credit.
(v) Immediate family means the spouse of an individual,
the individual’s minor children, and any of the individual’s children
(including adults) residing in the individual’s home.
(w) Intraday credit exposure means credit exposure of a covered foreign
entity to a counterparty that by its terms is to be repaid, sold,
or terminated by the end of its business day in the United States.
(x) Investment grade has the same meaning as in section
217.2 of the Board’s Regulation Q (12 CFR 217.2).
(y) Major
counterparty means any counterparty that is or includes:
(1) A U.S. bank holding company identified
as a global systemically important BHC pursuant to section 217.402
of the Board’s Regulation Q (12 CFR 217.402);
(2) A top-tier foreign banking organization
that meets the requirements of section 252.172(c)(3) through (5);
or
(3) Any nonbank financial company
supervised by the Board.
(z) Major foreign banking
organization is defined in section 252.170(a)(2)(ii) of this subpart.
(aa) Multilateral development bank has the same meaning
as in section 217.2 of the Board’s Regulation Q (12 CFR 217.2).
(bb) Net credit exposure means, with respect to any credit
transaction, the gross credit exposure of a covered foreign entity
and all of its subsidiaries calculated under section 252.173, as adjusted
in accordance with section 252.174.
(cc) Qualifying central
counterparty has the same meaning as in section 217.2 of the Board’s
Regulation Q (12 CFR 217.2).
(dd) Qualifying master netting
agreement has the same meaning as in section 217.2 of the Board’s
Regulation Q (12 CFR 217.2).
(ee) Securities financing transaction means any repurchase agreement, reverse repurchase agreement, securities
borrowing transaction, or securities lending transaction.
(ff) Short sale means any sale of a security which the seller does
not own or any sale which is consummated by the delivery of a security
borrowed by, or for the account of, the seller.
(gg) Sovereign
entity means a central national government (including the U.S.
government) or an agency, department, ministry, or central bank, but
not including any political subdivision such as a state, province,
or municipality.
(hh) Subsidiary. A company is a subsidiary of another company if
(1) The company is consolidated by the
other company under applicable accounting standards; or
(2) For a company that is not subject to
principles or standards referenced in paragraph (ii)(1) of this definition,
consolidation would have occurred if such principles or standards
had applied.
(ii) Tier 1 capital means common
equity tier 1 capital and additional tier 1 capital, as defined in
subpart O of the Board’s Regulation YY (12 CFR part 252, subpart O).
(jj) Tier 2 capital means tier 2 capital as defined in
subpart O of the Board’s Regulation YY (12 CFR part 252, subpart O).
(kk) Total consolidated assets.
(1) A foreign banking
organization’s total consolidated assets are determined based on:
(i) The average of
the foreign banking organization’s total consolidated assets in the
four most recent consecutive quarters as reported quarterly on the
FR Y-7Q; or
(ii) If the foreign
banking organization has not filed an FR Y-7Q for each of the four
most recent consecutive quarters, the average of the foreign banking
organization’s total consolidated assets, as reported on the foreign
banking organization’s FR Y-7Q, for the most recent quarter or consecutive
quarters, as applicable; or
(iii)
If the foreign banking organization has not yet filed an FR Y-7Q,
as determined under applicable accounting standards.
(2) A U.S. intermediate holding company’s
total consolidated assets are determined based on:
(i) The average of the U.S. intermediate
holding company’s total consolidated assets in the four most recent
consecutive quarters as reported quarterly on the FR Y-9C; or
(ii) If the U.S. intermediate holding
company has not filed an FR Y-9C for each of the four most recent
consecutive quarters, the average of the U.S. intermediate holding
company’s total consolidated assets, as reported on the company’s
FR Y-9C, for the most recent quarter or consecutive quarters, as applicable;
or
(iii) If the U.S. intermediate
holding company has not yet filed an FR Y-9C, as determined under
applicable accounting standards.
