---
kind: "section"
citation: "12 C.F.R. § 217.145"
title: "12"
number: "217.145"
heading: "Recognition of credit risk mitigants for securitization exposures."
url: "https://uscodex.org/cfr/12/217.145"
---

# §217.145. Recognition of credit risk mitigants for securitization exposures.

- (a) **General.** An originating Board-regulated institution that has obtained a credit risk mitigant to hedge its securitization exposure to a synthetic or traditional securitization that satisfies the operational criteria in [§ 217.141](/cfr/12/217.141.md) may recognize the credit risk mitigant, but only as provided in this section. An investing Board-regulated institution that has obtained a credit risk mitigant to hedge a securitization exposure may recognize the credit risk mitigant, but only as provided in this section.
- (b) **Collateral—**
  - (1) **Rules of recognition.** A Board-regulated institution may recognize financial collateral in determining the Board-regulated institution's risk-weighted asset amount for a securitization exposure (other than a repo-style transaction, an eligible margin loan, or an OTC derivative contract for which the Board-regulated institution has reflected collateral in its determination of exposure amount under [§ 217.132](/cfr/12/217.132.md)) as follows. The Board-regulated institution's risk-weighted asset amount for the collateralized securitization exposure is equal to the risk-weighted asset amount for the securitization exposure as calculated under the SSFA in [§ 217.144](/cfr/12/217.144.md) or under the SFA in [§ 217.143](/cfr/12/217.143.md) multiplied by the ratio of adjusted exposure amount (SE*) to original exposure amount (SE),
    - (i) SE* = max {0, [SE−C × (1−Hs−Hfx)]};
    - (ii) SE = the amount of the securitization exposure calculated under [§ 217.142(e)](/cfr/12/217.142.md?p=e);
    - (iii) C = the current fair value of the collateral;
    - (iv) Hs = the haircut appropriate to the collateral type; and
    - (v) Hfx = the haircut appropriate for any currency mismatch between the collateral and the exposure.
  - (3) **Standard supervisory haircuts.** Unless a Board-regulated institution qualifies for use of and uses own-estimates haircuts in [paragraph (b)(4)](#b-4) of this section:
    - (i) A Board-regulated institution must use the collateral type haircuts (Hs) in Table 1 to [§ 217.132](/cfr/12/217.132.md) of this subpart;
    - (ii) A Board-regulated institution must use a currency mismatch haircut (Hfx) of 8 percent if the exposure and the collateral are denominated in different currencies;
    - (iii) A Board-regulated institution must multiply the supervisory haircuts obtained in paragraphs [(b)(3)(i)](#b-3-i) and [(ii)](#b-3-ii) of this section by the square root of 6.5 (which equals 2.549510); and
    - (iv) A Board-regulated institution must adjust the supervisory haircuts upward on the basis of a holding period longer than 65 business days where and as appropriate to take into account the illiquidity of the collateral.
  - (4) **Own estimates for haircuts.** With the prior written approval of the Board, a Board-regulated institution may calculate haircuts using its own internal estimates of market price volatility and foreign exchange volatility, subject to [§ 217.132(b)(2)(iii)](/cfr/12/217.132.md?p=b-2-iii). The minimum holding period (TM) for securitization exposures is 65 business days.
- (c) **Guarantees and credit derivatives—**
  - (1) **Limitations on recognition.** A Board-regulated institution may only recognize an eligible guarantee or eligible credit derivative provided by an eligible guarantor in determining the Board-regulated institution's risk-weighted asset amount for a securitization exposure.
  - (2) **ECL for securitization exposures.** When a Board-regulated institution recognizes an eligible guarantee or eligible credit derivative provided by an eligible guarantor in determining the Board-regulated institution's risk-weighted asset amount for a securitization exposure, the Board-regulated institution must also:
    - (i) Calculate ECL for the protected portion of the exposure using the same risk parameters that it uses for calculating the risk-weighted asset amount of the exposure as described in [paragraph (c)(3)](#c-3) of this section; and
    - (ii) **Add the exposure's ECL to the Board-regulated institution's total ECL.**
  - (3) **Rules of recognition.** A Board-regulated institution may recognize an eligible guarantee or eligible credit derivative provided by an eligible guarantor in determining the Board-regulated institution's risk-weighted asset amount for the securitization exposure as follows:
    - (i) **Full coverage.** If the protection amount of the eligible guarantee or eligible credit derivative equals or exceeds the amount of the securitization exposure, the Board-regulated institution may set the risk-weighted asset amount for the securitization exposure equal to the risk-weighted asset amount for a direct exposure to the eligible guarantor (as determined in the wholesale risk weight function described in [§ 217.131](/cfr/12/217.131.md)), using the Board-regulated institution's PD for the guarantor, the Board-regulated institution's LGD for the guarantee or credit derivative, and an EAD equal to the amount of the securitization exposure (as determined in [§ 217.142(e)](/cfr/12/217.142.md?p=e)).
    - (ii) **Partial coverage.** If the protection amount of the eligible guarantee or eligible credit derivative is less than the amount of the securitization exposure, the Board-regulated institution may set the risk-weighted asset amount for the securitization exposure equal to the sum of:
      - (A) **Covered portion.** The risk-weighted asset amount for a direct exposure to the eligible guarantor (as determined in the wholesale risk weight function described in [§ 217.131](/cfr/12/217.131.md)), using the Board-regulated institution's PD for the guarantor, the Board-regulated institution's LGD for the guarantee or credit derivative, and an EAD equal to the protection amount of the credit risk mitigant; and
      - (B) **Uncovered portion.** (1) 1.0 minus the ratio of the protection amount of the eligible guarantee or eligible credit derivative to the amount of the securitization exposure); multiplied by

        (2) The risk-weighted asset amount for the securitization exposure without the credit risk mitigant (as determined in [§§ 217.142 through 146](/cfr/12/217.142..146.md)).

  - (4) **Mismatches.** The Board-regulated institution must make applicable adjustments to the protection amount as required in § [217.134(d)](/cfr/12/217.134.md?p=d), [(e)](/cfr/12/217.134.md?p=e), and [(f)](/cfr/12/217.134.md?p=f) for any hedged securitization exposure and any more senior securitization exposure that benefits from the hedge. In the context of a synthetic securitization, when an eligible guarantee or eligible credit derivative covers multiple hedged exposures that have different residual maturities, the Board-regulated institution must use the longest residual maturity of any of the hedged exposures as the residual maturity of all the hedged exposures.

## 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.