---
kind: "section"
citation: "12 C.F.R. § 217.141"
title: "12"
number: "217.141"
heading: "Operational criteria for recognizing the transfer of risk."
url: "https://uscodex.org/cfr/12/217.141"
---

# §217.141. Operational criteria for recognizing the transfer of risk.

- (a) **Operational criteria for traditional securitizations.** A Board-regulated institution that transfers exposures it has originated or purchased to a securitization SPE or other third party in connection with a traditional securitization may exclude the exposures from the calculation of its risk-weighted assets only if each of the conditions in this [paragraph (a)](#a) is satisfied. A Board-regulated institution that meets these conditions must hold risk-based capital against any securitization exposures it retains in connection with the securitization. A Board-regulated institution that fails to meet these conditions must hold risk-based capital against the transferred exposures as if they had not been securitized and must deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from the transaction. The conditions are:
  - (1) The exposures are not reported on the Board-regulated institution's consolidated balance sheet under GAAP;
  - (2) The Board-regulated institution has transferred to one or more third parties credit risk associated with the underlying exposures;
  - (3) Any clean-up calls relating to the securitization are eligible clean-up calls; and
  - (4) **The securitization does not—**
    - (i) Include one or more underlying exposures in which the borrower is permitted to vary the drawn amount within an agreed limit under a line of credit; and
    - (ii) **Contain an early amortization provision.**
- (b) **Operational criteria for synthetic securitizations.** For synthetic securitizations, a Board-regulated institution may recognize for risk-based capital purposes under this subpart the use of a credit risk mitigant to hedge underlying exposures only if each of the conditions in this [paragraph (b)](#b) is satisfied. A Board-regulated institution that meets these conditions must hold risk-based capital against any credit risk of the exposures it retains in connection with the synthetic securitization. A Board-regulated institution that fails to meet these conditions or chooses not to recognize the credit risk mitigant for purposes of this section must hold risk-based capital under this subpart against the underlying exposures as if they had not been synthetically securitized. The conditions are:
  - (1) **The credit risk mitigant is—**
    - (i) Financial collateral; or
    - (ii) A guarantee that meets all of the requirements of an eligible guarantee in [§ 217.2](/cfr/12/217.2.md) except for [paragraph (3)](#b-3) of the definition; or
    - (iii) A credit derivative that meets all of the requirements of an eligible credit derivative except for [paragraph (3)](#b-3) of the definition of eligible guarantee in [§ 217.2](/cfr/12/217.2.md).
  - (2) The Board-regulated institution transfers credit risk associated with the underlying exposures to third parties, and the terms and conditions in the credit risk mitigants employed do not include provisions that:
    - (i) Allow for the termination of the credit protection due to deterioration in the credit quality of the underlying exposures;
    - (ii) Require the Board-regulated institution to alter or replace the underlying exposures to improve the credit quality of the underlying exposures;
    - (iii) Increase the Board-regulated institution's cost of credit protection in response to deterioration in the credit quality of the underlying exposures;
    - (iv) Increase the yield payable to parties other than the Board-regulated institution in response to a deterioration in the credit quality of the underlying exposures; or
    - (v) Provide for increases in a retained first loss position or credit enhancement provided by the Board-regulated institution after the inception of the securitization;
  - (3) The Board-regulated institution obtains a well-reasoned opinion from legal counsel that confirms the enforceability of the credit risk mitigant in all relevant jurisdictions; and
  - (4) **Any clean-up calls relating to the securitization are eligible clean-up calls.**
- (c) **Due diligence requirements for securitization exposures.**
  - (1) Except for exposures that are deducted from common equity tier 1 capital and exposures subject to [§ 217.142(k)](/cfr/12/217.142.md?p=k), if a Board-regulated institution is unable to demonstrate to the satisfaction of the Board a comprehensive understanding of the features of a securitization exposure that would materially affect the performance of the exposure, the Board-regulated institution must assign a 1,250 percent risk weight to the securitization exposure. The Board-regulated institution's analysis must be commensurate with the complexity of the securitization exposure and the materiality of the position in relation to regulatory capital according to this part.
  - (2) A Board-regulated institution must demonstrate its comprehensive understanding of a securitization exposure under [paragraph (c)(1)](#c-1) of this section, for each securitization exposure by:
    - (i) Conducting an analysis of the risk characteristics of a securitization exposure prior to acquiring the exposure and document such analysis within three business days after acquiring the exposure, considering:
      - (A) Structural features of the securitization that would materially impact the performance of the exposure, for example, the contractual cash flow waterfall, waterfall-related triggers, credit enhancements, liquidity enhancements, fair value triggers, the performance of organizations that service the position, and deal-specific definitions of default;
      - (B) Relevant information regarding the performance of the underlying credit exposure(s), for example, the percentage of loans 30, 60, and 90 days past due; default rates; prepayment rates; loans in foreclosure; property types; occupancy; average credit score or other measures of creditworthiness; average loan-to-value ratio; and industry and geographic diversification data on the underlying exposure(s);
      - (C) Relevant market data of the securitization, for example, bid-ask spreads, most recent sales price and historical price volatility, trading volume, implied market rating, and size, depth and concentration level of the market for the securitization; and
      - (D) For resecuritization exposures, performance information on the underlying securitization exposures, for example, the issuer name and credit quality, and the characteristics and performance of the exposures underlying the securitization exposures; and
    - (ii) On an on-going basis (no less frequently than quarterly), evaluating, reviewing, and updating as appropriate the analysis required under this section for each securitization exposure.

## Notes

### Authority

Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p-1, 1831w, 1835, 1844(b), 1851, 3904, 3906-3909, 4808, 5365, 5368, 5371, 5371 note, and sec. 4012, Pub. L. 116-136, 134 Stat. 281.

### Source

Source: Reg. Q, 78 FR 62157, 62285, Oct. 11, 2013, unless otherwise noted.