SECTION
217.51—Introduction and Exposure Measurement
(a) General.
(1) To calculate its risk-weighted asset
amounts for equity exposures that are not equity exposures to an investment
fund, a Board-regulated institution must use the Simple Risk-Weight
Approach (SRWA) provided in section 217.52. A Board-regulated institution
must use the look-through approaches provided in section 217.53 to
calculate its risk-weighted asset amounts for equity exposures to
investment funds.
(2)
A Board-regulated institution must treat an investment in a separate
account (as defined in section 217.2) as if it were an equity exposure
to an investment fund as provided in section 217.53.
(3) Stable value
protection.
(i) Stable value protection means a
contract where the provider of the contract is obligated to pay:
(A) The policy owner of a separate account an amount equal to the
shortfall between the fair value and cost basis of the separate account
when the policy owner of the separate account surrenders the policy;
or
(B) The beneficiary
of the contract an amount equal to the shortfall between the fair
value and book value of a specified portfolio of assets.
(ii) A Board-regulated
institution that purchases stable value protection on its investment
in a separate account must treat the portion of the carrying value
of its investment in the separate account attributable to the stable
value protection as an exposure to the provider of the protection
and the remaining portion of the carrying value of its separate account
as an equity exposure to an investment fund.
(iii) A Board-regulated institution
that provides stable value protection must treat the exposure as an
equity derivative with an adjusted carrying value determined as the
sum of paragraphs (b)(1) and (3) of this section.
(b) Adjusted carrying
value. For purposes of sections 217.51 through 217.53, the adjusted
carrying value of an equity exposure is:
(1) For the on-balance sheet component
of an equity exposure (other than an equity exposure that is classified
as available-for-sale where the Board-regulated institution has made
an AOCI opt-out election under section 217.22(b)(2)), the Board-regulated
institution’s carrying value of the exposure;
(2) For the on-balance sheet component
of an equity exposure that is classified as available-for-sale where
the Board-regulated institution has made an AOCI opt-out election
under section 217.22(b)(2), the Board-regulated institution’s carrying
value of the exposure less any net unrealized gains on the exposure
that are reflected in such carrying value but excluded from the Board-regulated
institution’s regulatory capital components;
(3) For the off-balance sheet component
of an equity exposure that is not an equity commitment, the effective
notional principal amount of the exposure, the size of which is equivalent
to a hypothetical on-balance sheet position in the underlying equity
instrument that would evidence the same change in fair value (measured
in dollars) given a small change in the price of the underlying equity
instrument, minus the adjusted carrying value of the on-balance sheet
component of the exposure as calculated in paragraph (b)(1) of this
section; and
(4) For
a commitment to acquire an equity exposure (an equity commitment),
the effective notional principal amount of the exposure is multiplied
by the following conversion factors (CFs):
(i) Conditional equity
commitments with an original maturity of one year or less receive
a CF of 20 percent.
(ii) Conditional equity commitments with an original maturity of
over one year receive a CF of 50 percent.
(iii) Unconditional equity commitments
receive a CF of 100 percent.
