SECTION
217.151—Introduction and Exposure Measurement
(a) General.
(1) To calculate its risk-weighted asset
amounts for equity exposures that are not equity exposures to investment
funds, a Board-regulated institution may apply either the Simple Risk
Weight Approach (SRWA) in section 217.152 or, if it qualifies to do
so, the Internal Models Approach (IMA) in section 217.153. A Board-regulated
institution must use the look-through approaches provided in section
217.154 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 217.154.
(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 section 217.151(b)(1) and (2).
(b) Adjusted carrying
value. For purposes of this subpart, the adjusted carrying value
of an equity exposure is:
(1) For the on-balance sheet component
of an equity exposure, the Board-regulated institution’s carrying
value of the exposure;
(2) For the off-balance sheet component of an equity exposure, 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) for a given 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.
(3) For unfunded equity commitments that are unconditional, the effective
notional principal amount is the notional amount of the commitment.
For unfunded equity commitments that are conditional, the effective
notional principal amount is the Board-regulated institution’s best
estimate of the amount that would be funded under economic downturn
conditions.
