Part: / PART 628 - CAPITAL ADEQUACY OF SYSTEM INSTITUTIONS /
Subpart: / Subpart D - Risk Weighted Assets--Standardized Approach /
Date Created: / 1/6/2017
Date Modified: / 1/6/2017
Risk-Weighted Assets for Securitization Exposures
§628.43 Simplifiedsupervisoryformulaapproach (SSFA) and the gross-up approach.
(a)Generalrequirements for the SSFA.Touse theSSFA todeterminetherisk weightfor a securitizationexposure, a System institution musthavedatathatenablesittoassign accuratelythe parametersdescribedinparagraph(b) of thissection. Dataused toassign theparameters describedinparagraph(b) of thissectionmustbethemostcurrentlyavailabledata; if the contract governing the underlying exposures of the securitization require payment on a monthly or quarterly basis, the data used to assign the parameters described in paragraph (b) of this section must be no more than91 calendardays old. A System institution thatdoesnothavetheappropriatedatatoassign the parametersdescribedinparagraph(b) of thissectionmustassign arisk weightof 1,250 percent totheexposure.
(b)SSFA parameters. Tocalculatetherisk weightfor asecuritizationexposureusingthe SSFA, a System institution musthaveaccurateinformationon thefollowingfiveinputstotheSSFA calculation:
(1)KG istheweighted-average(withunpaidprincipalusedas theweightfor each exposure)totalcapitalrequirementof theunderlyingexposures calculatedusingthissubpart.KG isexpressedas adecimalvaluebetween0and1 (thatis,anaveragerisk weightof 100 percentrepresentsa valueof KG equalto.08).
(2)ParameterWisexpressedas adecimalvaluebetween0and1.Parameter W is the ratio of the sum of the dollaramountsof anyunderlyingexposures withinthesecuritized poolthatmeetanyof thecriteriaas setforthinparagraphs(b)(2)(i)through(vi)of thissectionto thebalance,measuredindollars,of underlyingexposures:
(i) Ninety (90)days or morepastdue;
(ii)Subjecttoabankruptcyor insolvencyproceeding;
(iii)In theprocess of foreclosure;
(iv)Heldas realestateowned;
(v) Has contractuallydeferredinterestpaymentsfor 90 days or more, other than principal or interest payments deferred on:
(A) Federally guaranteed student loans, in accordance with the terms of those guarantee programs; or
(B) Consumer loans, including non-federally guaranteed student loans, provided that such payments are deferred pursuant to provisions included in the contract at the time funds are disbursed that provide for periods(s) of deferral that are not initiated based on changes in the creditworthiness of the borrower; or
(vi)Is indefault.
(3) ParameterA istheattachmentpointfor theexposure,whichrepresentsthethreshold at whichcreditlosses willfirstbeallocatedtotheexposure.Except as provided in §628.42(i) for nth –to-default credit derivatives, parameter A equalstheratioof the currentdollaramountof underlyingexposures thataresubordinatedtotheexposureof the System institution tothecurrentdollaramountof underlyingexposures. Any reserveaccountfundedby theaccumulatedcashflows fromtheunderlyingexposures thatissubordinatedtothe System institution's securitizationexposuremaybeincludedinthecalculationof parameterA totheextentthatcash ispresentintheaccount. Parameter isexpressedas adecimalvaluebetween0and1.
(4) Parameter isthedetachmentpointfortheexposure,whichrepresentsthethreshold atwhichcreditlosses of principalallocatedtotheexposurewouldresultinatotalloss of principal.Except as provided in § 628.42(i) for nth-to-default credit derivatives, parameter equalsparameterA plustheratioofthecurrentdollaramountof the securitizationexposuresthatareparipassuwiththeexposure(thatis,haveequalsenioritywith respecttocreditrisk)tothecurrentdollaramountof theunderlyingexposures. Parameter is expressedasadecimalvaluebetween0and1.
(5) A supervisory calibrationparameter, p, isequalto0.5 for securitizationexposures that arenotresecuritizationexposures andequalto1.5 for resecuritizationexposures.
(c)Mechanicsof theSSFA. KG andareusedtocalculate KA,theaugmentedvalueof KG,whichreflectstheobservedcreditqualityof theunderlyingpoolof exposures. KAisdefined inparagraph(d) of thissection.Thevaluesof parameters and, relativetoKAdeterminethe riskweightassignedtoasecuritizationexposureas describedinparagraph(d) of thissection. Therisk weightassignedtoasecuritizationexposure,or portionof a securitizationexposure,as appropriate,is thelargeroftherisk weightdeterminedinaccordancewiththisparagraph(d) of this sectionandarisk weightof 20 percent.
(1)Whenthedetachmentpoint,parameter,forasecuritizationexposureisless thanor equalto KA,theexposuremustbeassignedarisk weightof 1,250 percent.
(2)Whentheattachmentpoint,parameter,forasecuritizationexposureisgreaterthan orequalto KA,the System institution mustcalculatetherisk weightinaccordancewithparagraph(d) of thissection.
(3)WhenA islessthanKAand isgreaterthanKA,therisk weightisaweighted average of 1,250 percentand1,250 percenttimesKSSFAcalculatedinaccordancewithparagraph (d) of thissection. For thepurpose of this weighted-averagecalculation:
(i) Theweightassignedto1,250 percentequals:
(ii) The weight assigned to 1,250 percent times KSSFA equals:
(iii) The risk weight will be set equal to:
(d)SSFA equation.(1) The System institution mustdefinethefollowingparameters:
(2)Thenthe System institution mustcalculateKSSFAaccordingtothefollowingequation:
Where:
(3) Therisk weightfor theexposure(expressedas a percent)isequalto KSSFA x 1,250.
(e)Gross-up approach—
(1) Applicability.A System institution may applythe gross-up approachsetforthinthissectioninsteadoftheSSFA todeterminetherisk weightof itssecuritizationexposures, providedthatitappliesthegross-up approachtoallof itssecuritizationexposures,exceptas otherwiseprovidedfor certain securitizationexposures in§§628.44 and628.45.
(2) Touse thegross-up approach, a System institution mustcalculatethefollowingfour inputs:
(i)Pro ratashare ,whichistheparvalueof the System institution's securitizationexposure as a percentof theparvalueof thetrancheinwhichthesecuritizationexposureresides :
(ii)Enhancedamount ,whichisthevalueof tranchesthataremoreseniortothetranche inwhichthe System institution'ssecuritizationresides;
(iii)Exposureamount (carrying value) C of the System institution'ssecuritizationexposurecalculatedunder §628.42(c); and
(iv)Riskweight (RW)whichistheweighted-averageriskweightofunderlyingexposures in thesecuritizationpoolascalculatedunderthissubpart. For example, RW for an asset-backed security with underlying car loans would be 100 percent.
(3)Creditequivalentamount (CEA).TheCEA of a securitizationexposure underthissectionequalsthesumof:
(i)Theexposureamountof the System institution'ssecuritization exposure; plus
(ii)Thepro ratasharemultipliedby theenhancedamount ,eachcalculatedin accordancewithparagraph(e)(2)of thissection:
(4) Risk-weightedassets (RWA). Tocalculatefor asecuritizationexposure underthegross-up approach, a System institution mustapplythecalculatedunderparagraph (e)(2)of thissectiontothecalculatedinparagraph(e)(3)of this section:
(f) Limitations.Notwithstandinganyotherprovisionof thissection, a System institution must assign arisk weightof notless than20 percenttoasecuritizationexposure.
[81 FR 49803, July 28, 2016]