(a) Hierarchy of approaches. Except as provided elsewhere in this
section and in section 217.141:
(1) A Board-regulated institution must
deduct from common equity tier 1 capital any after-tax gain-on-sale
resulting from a securitization and must apply a 1,250 percent risk
weight to the portion of any CEIO that does not constitute after tax
gain-on-sale;
(2) If
a securitization exposure does not require deduction or a 1,250 percent
risk weight under paragraph (a)(1) of this section, the Board-regulated
institution must apply the supervisory formula approach in section
217.143 to the exposure if the Board-regulated institution and the
exposure qualify for the supervisory formula approach according to
section 217.143(a);
(3) If a securitization exposure does not require deduction or a
1,250 percent risk weight under paragraph (a)(1) of this section and
does not qualify for the supervisory formula approach, the Board-regulated
institution may apply the simplified supervisory formula approach
under section 217.144;
(4) If a securitization exposure does not require deduction or a
1,250 percent risk weight under paragraph (a)(1) of this section,
does not qualify for the supervisory formula approach in section 217.143,
and the Board-regulated institution does not apply the simplified
supervisory formula approach in section 217.144, the Board-regulated
institution must apply a 1,250 percent risk weight to the exposure;
and
(5) If a securitization
exposure is a derivative contract (other than protection provided
by a Board-regulated institution in the form of a credit derivative)
that has a first priority claim on the cash flows from the underlying
exposures (notwithstanding amounts due under interest rate or currency
derivative contracts, fees due, or other similar payments), a Board-regulated
institution may choose to set the risk-weighted asset amount of the
exposure equal to the amount of the exposure as determined in paragraph
(e) of this section rather than apply the hierarchy of approaches
described in paragraphs (a)(1) through (4) of this section.
(b) Total risk-weighted assets for securitization exposures. A Board-regulated
institution’s total risk-weighted assets for securitization exposures
is equal to the sum of its risk-weighted assets calculated using sections
217.141 through 146.
(c) Deductions. A Board-regulated institution may calculate any
deduction from common equity tier 1 capital for a securitization exposure
net of any DTLs associated with the securitization exposure.
(d) Maximum risk-based capital
requirement. Except as provided in section 217.141(c), unless
one or more underlying exposures does not meet the definition of a
wholesale, retail, securitization, or equity exposure, the total risk-based
capital requirement for all securitization exposures held by a single
Board-regulated institution associated with a single securitization
(excluding any risk-based capital requirements that relate to the
Board-regulated institution’s gain-on-sale or CEIOs associated with
the securitization) may not exceed the sum of:
(1) The Board-regulated institution’s total
risk-based capital requirement for the underlying exposures calculated
under this subpart as if the Board-regulated institution directly
held the underlying exposures; and
(2) The total ECL of the underlying exposures
calculated under this subpart.
(e) Exposure amount of a securitization exposure.
(1) The exposure amount of
an on-balance sheet securitization exposure that is not a repo-style
transaction, eligible margin loan, OTC derivative contract, or cleared
transaction is the Board-regulated institution’s carrying value.
(2) Except as provided
in paragraph (m) of this section, the exposure amount of an off-balance
sheet securitization exposure that is not an OTC derivative contract
(other than a credit derivative), repo-style transaction, eligible
margin loan, or cleared transaction (other than a credit derivative)
is the notional amount of the exposure. For an off-balance-sheet securitization
exposure to an ABCP program, such as an eligible ABCP liquidity facility,
the notional amount may be reduced to the maximum potential amount
that the Board-regulated institution could be required to fund given
the ABCP program’s current underlying assets (calculated without regard
to the current credit quality of those assets).
(3) The exposure amount of a securitization
exposure that is a repo-style transaction, eligible margin loan, or
OTC derivative contract (other than a credit derivative) or cleared
transaction (other than a credit derivative) is the EAD of the exposure
as calculated in section 217.132 or section 217.133.
(f) Overlapping exposures. If a Board-regulated institution has multiple securitization exposures
that provide duplicative coverage of the underlying exposures of a
securitization (such as when a Board-regulated institution provides
a program-wide credit enhancement and multiple pool-specific liquidity
facilities to an ABCP program), the Board-regulated institution is
not required to hold duplicative risk-based capital against the overlapping
position. Instead, the Board-regulated institution may assign to the
overlapping securitization exposure the applicable risk-based capital
treatment under this subpart that results in the highest risk-based
capital requirement.
(g) Securitizations of non-IRB exposures. Except as provided in
section 217.141(c), if a Board-regulated institution has a securitization
exposure where any underlying exposure is not a wholesale exposure,
retail exposure, securitization exposure, or equity exposure, the
Board-regulated institution:
(1) Must deduct from common equity tier
1 capital any after-tax gain-on-sale resulting from the securitization
and apply a 1,250 percent risk weight to the portion of any CEIO that
does not constitute gain-on-sale, if the Board-regulated institution
is an originating Board-regulated institution;
(2) May apply the simplified supervisory
formula approach in section 217.144 to the exposure, if the securitization
exposure does not require deduction or a 1,250 percent risk weight
under paragraph (g)(1) of this section;
(3) Must assign a 1,250 percent risk weight
to the exposure if the securitization exposure does not require deduction
or a 1,250 percent risk weight under paragraph (g)(1) of this section,
does not qualify for the supervisory formula approach in section 217.143,
and the Board-regulated institution does not apply the simplified
supervisory formula approach in section 217.144 to the exposure.
(h) Implicit
support. If a Board-regulated institution provides support to
a securitization in excess of the Board-regulated institution’s contractual
obligation to provide credit support to the securitization (implicit
support):
(1) The Board-regulated
institution must calculate a risk-weighted asset amount for underlying
exposures associated with the securitization as if the exposures had
not been securitized and must deduct from common equity tier 1 capital
any after-tax gain-on-sale resulting from the securitization; and
(2) The Board-regulated
institution must disclose publicly:
(i) That it has provided
implicit support to the securitization; and
(ii) The regulatory capital impact to
the Board-regulated institution of providing such implicit support.
(i) Undrawn portion of a servicer cash advance facility.
(1) Notwithstanding any other provision
of this subpart, a Board-regulated institution that is a servicer
under an eligible servicer cash advance facility is not required to
hold risk-based capital against potential future cash advance payments
that it may be required to provide under the contract governing the
facility.
(2) For a
Board-regulated institution that acts as a servicer, the exposure
amount for a servicer cash advance facility that is not an eligible
servicer cash advance facility is equal to the amount of all potential
future cash advance payments that the Board-regulated institution
may be contractually required to provide during the subsequent 12
month period under the contract governing the facility.
(j) Interest-only mortgage-backed
securities. Regardless of any other provisions in this part,
the risk weight for a non-credit-enhancing interest-only mortgage-backed
security may not be less than 100 percent.
(k) Small-business loans and leases on personal
property transferred with recourse.
(1) Notwithstanding any other provisions
of this subpart E, a Board-regulated institution that has transferred
small-business loans and leases on personal property (small-business
obligations) with recourse must include in risk-weighted assets only
the contractual amount of retained recourse if all the following conditions
are met:
(i) The transaction is a sale under
GAAP.
(ii) The Board-regulated
institution establishes and maintains, pursuant to GAAP, a non-capital
reserve sufficient to meet the Board-regulated institution’s reasonably
estimated liability under the recourse arrangement.
(iii) The loans and leases are to businesses
that meet the criteria for a small-business concern established by
the Small Business Administration under section 3(a) of the Small
Business Act (15 U.S.C. 632 et seq.); and
(iv) (A) In
the case of a state member bank, the bank is well capitalized, as
defined in section 208.43 of this chapter. For purposes of determining
whether a state member bank is well capitalized for purposes of this
paragraph, the state member bank’s capital ratios must be calculated
without regard to the capital treatment for transfers of small-business
obligations with recourse specified in this paragraph (k)(1).
(B) In the case of a bank holding
company or savings and loan holding company, the bank holding company
or savings and loan holding company is well capitalized, as defined
in 12 CFR 225.2. For purposes of determining whether a bank holding
company or savings and loan holding company is well capitalized for
purposes of this paragraph, the bank holding company or savings and
loan holding company’s capital ratios must be calculated without regard
to the capital treatment for transfers of small-business obligations
with recourse specified in this paragraph (k)(1).
(2) The total
outstanding amount of recourse retained by a Board-regulated institution
on transfers of small-business obligations subject to paragraph (k)(1)
of this section cannot exceed 15 percent of the Board-regulated institution’s
total capital.
(3)
If a Board-regulated institution ceases to be well capitalized or
exceeds the 15 percent capital limitation in paragraph (k)(2) of this
section, the preferential capital treatment specified in paragraph
(k)(1) of this section will continue to apply to any transfers of
small-business obligations with recourse that occurred during the
time that the Board-regulated institution was well capitalized and
did not exceed the capital limit.
(4) The risk-based capital ratios of a
Board-regulated institution must be calculated without regard to the
capital treatment for transfers of small-business obligations with
recourse specified in paragraph (k)(1) of this section.
(l) Nth-to-default credit derivatives.
(1) Protection
provider. A Board-regulated institution must determine a risk
weight using the supervisory formula approach (SFA) pursuant to section
217.143 or the simplified supervisory formula approach (SSFA) pursuant
to section 217.144 for an nth-to-default credit derivative
in accordance with this paragraph (l). In the case of credit
protection sold, a Board-regulated institution must determine its
exposure in the nth-to-default credit derivative as the
largest notional amount of all the underlying exposures.
(2) For purposes of determining
the risk weight for an nth-to-default credit derivative
using the SFA or the SSFA, the Board-regulated institution must calculate
the attachment point and detachment point of its exposure as follows:
(i) The attachment point (parameter A) is the ratio of the sum of
the notional amounts of all underlying exposures that are subordinated
to the Board-regulated institution’s exposure to the total notional
amount of all underlying exposures. For purposes of the SSFA, parameter
A is expressed as a decimal value between zero and one. For purposes
of using the SFA to calculate the risk weight for its exposure in
an nth-to-default credit derivative, parameter A must be
set equal to the credit enhancement level (L) input to the SFA formula.
In the case of a first-to-default credit derivative, there are no
underlying exposures that are subordinated to the Board-regulated
institution’s exposure. In the case of a second-or-subsequent-to-default
credit derivative, the smallest (n-1) risk-weighted asset amounts
of the underlying exposure(s) are subordinated to the Board-regulated
institution’s exposure.
(ii) The detachment point (parameter D) equals the sum of parameter
A plus the ratio of the notional amount of the Board-regulated institution’s
exposure in the nth-to-default credit derivative to the
total notional amount of all underlying exposures. For purposes of
the SSFA, parameter W is expressed as a decimal value between zero
and one. For purposes of the SFA, parameter D must be set to equal
L plus the thickness of tranche T input to the SFA formula.
(3) A Board-regulated
institution that does not use the SFA or the SSFA to determine a risk
weight for its exposure in an nth-to-default credit derivative
must assign a risk weight of 1,250 percent to the exposure.
(4) Protection purchaser.
(i) First-to-default
credit derivatives. A Board-regulated institution that obtains
credit protection on a group of underlying exposures through a first-to-default
credit derivative that meets the rules of recognition of section 217.134(b)
must determine its risk-based capital requirement under this subpart
for the underlying exposures as if the Board-regulated institution
synthetically securitized the underlying exposure with the lowest
risk-based capital requirement and had obtained no credit risk mitigant
on the other underlying exposures. A Board-regulated institution must
calculate a risk-based capital requirement for counterparty credit
risk according to section 217.132 for a first-to-default credit derivative
that does not meet the rules of recognition of section 217.134(b).
(ii) Second-or-subsequent-to-default credit derivatives.
(A) A Board-regulated institution that obtains credit protection
on a group of underlying exposures through a nth -to-default
credit derivative that meets the rules of recognition of section 217.134(b)
(other than a first-to-default credit derivative) may recognize the
credit risk mitigation benefits of the derivative only if:
(1) The Board-regulated institution
also has obtained credit protection on the same underlying exposures
in the form of first-through-(n-1)-to-default credit derivatives;
or
(2) If n-1
of the underlying exposures have already defaulted.
(B) If a Board-regulated
institution satisfies the requirements of paragraph (l)(3)(ii)(A)
of this section, the Board-regulated institution must determine its
risk-based capital requirement for the underlying exposures as if
the bank had only synthetically securitized the underlying exposure
with the nth smallest risk-based capital requirement and
had obtained no credit risk mitigant on the other underlying exposures.
(C) A Board-regulated institution
must calculate a risk-based capital requirement for counterparty credit
risk according to section 217.132 for a nth-to-default
credit derivative that does not meet the rules of recognition of section
217.134(b).
(m) Guarantees and credit derivatives other
than nth-to-default credit derivatives.
(1) Protection
provider. For a guarantee or credit derivative (other than an
nth-to-default credit derivative) provided by a Board-regulated
institution that covers the full amount or a pro rata share of a securitization
exposure’s principal and interest, the Board-regulated institution
must risk weight the guarantee or credit derivative as if it holds
the portion of the reference exposure covered by the guarantee or
credit derivative.
(2) Protection purchaser.
(i) A Board-regulated
institution that purchases an OTC credit derivative (other than an
nth-to-default credit derivative) that is recognized under
section 217.145 as a credit risk mitigant (including via recognized
collateral) is not required to compute a separate counterparty credit
risk capital requirement under section 217.131 in accordance with
section 217.132(c)(3).
(ii) If a Board-regulated institution cannot, or chooses not to,
recognize a purchased credit derivative as a credit risk mitigant
under section 217.145, the Board-regulated institution must determine
the exposure amount of the credit derivative under section 217.132(c).
(A) If the Board-regulated institution purchases credit protection
from a counterparty that is not a securitization SPE, the Board-regulated
institution must determine the risk weight for the exposure according
section 217.131.
(B) If
the Board-regulated institution purchases the credit protection from
a counterparty that is a securitization SPE, the Board-regulated institution
must determine the risk weight for the exposure according to this
section, including paragraph (a)(5) of this section for a credit derivative
that has a first priority claim on the cash flows from the underlying exposures
of the securitization SPE (notwithstanding amounts due under interest
rate or currency derivative contracts, fees due, or other similar
payments.
