§3.131. Mechanics for calculating total wholesale and retail risk-weighted assets. — Inbound Citations

(ii) To calculate risk-weighted assets for purposes of the approach in paragraph (d)(10)(i) of this section, the national bank or Federal savings association must insert the assigned risk parameters for each counterparty and netting set into the appropriate formula specified in Table 1 of § 3.131, multiply the output of the formula by the EAD for the exposure as specified above, and multiply by 12.5.

(i) If an eligible guarantee or eligible credit derivative meets the conditions in paragraphs (a) and (b) of this section and the protection amount (P) of the guarantee or credit derivative is greater than or equal to the EAD of the hedged exposure, a national bank or Federal savings association may recognize the guarantee or credit derivative in determining the national bank's or Federal savings association's risk-based capital requirement for the hedged exposure by substituting the PD associated with the rating grade of the protection provider for the PD associated with the rating grade of the obligor in the risk-based capital formula applicable to the guarantee or credit derivative in Table 1 of § 3.131 and using the appropriate LGD as described in paragraph (c)(1)(iii) of this section. If the national bank or Federal savings association determines that full substitution of the protection provider's PD leads to an inappropriate degree of risk mitigation, the national bank or Federal savings association may substitute a higher PD than that of the protection provider.

(2) For the unprotected exposure, the national bank or Federal savings association must set EAD equal to the EAD of the original exposure minus P and then calculate its risk-weighted asset amount as provided in § 3.131.

(2) Repo-style transactions, including unsettled repo-style transactions (which are addressed in §§ 3.131 and 132);

(i) A national bank or Federal savings association that purchases an OTC credit derivative (other than an nth-to-default credit derivative) that is recognized under § 3.145 as a credit risk mitigant (including via recognized collateral) is not required to compute a separate counterparty credit risk capital requirement under § 3.131 in accordance with § 3.132(c)(3).

(i) If the protection amount of the eligible guarantee or eligible credit derivative equals or exceeds the amount of the securitization exposure, the national bank or Federal savings association 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 § 3.131), using the national bank's or Federal savings association's PD for the guarantor, the national bank's or Federal savings association's LGD for the guarantee or credit derivative, and an EAD equal to the amount of the securitization exposure (as determined in § 3.142(e)).

(i) Credit-risk-weighted assets;

(ii) Credit valuation adjustment (CVA) risk-weighted assets;

(iii) Risk-weighted assets for operational risk; and

(iv) For a market risk national bank or Federal savings association only, advanced market risk-weighted assets; minus

(i) A national bank or Federal savings association must have an internal system that groups retail exposures into the appropriate retail exposure subcategory and groups the retail exposures in each retail exposure subcategory into separate segments with homogeneous risk characteristics that provide a meaningful differentiation of risk. The national bank's or Federal savings association's system must identify and group in separate segments by subcategories exposures identified in § 3.131(c)(2)(ii) and (iii).

(i) A national bank or Federal savings association must have an internal system that groups retail exposures into the appropriate retail exposure subcategory and groups the retail exposures in each retail exposure subcategory into separate segments with homogeneous risk characteristics that provide a meaningful differentiation of risk. The national bank's or Federal savings association's system must identify and group in separate segments by subcategories exposures identified in § 3.131(c)(2)(ii) and (iii).

(3) A national bank or Federal savings association may elect to recognize the credit risk mitigation benefits of an eligible guarantee or eligible credit derivative covering an exposure described in paragraph (a)(1) of this section by using the PD substitution approach or the LGD adjustment approach in paragraph (c) of this section or, if the transaction qualifies, using the double default treatment in § 3.135. A national bank's or Federal savings association's PD and LGD for the hedged exposure may not be lower than the PD and LGD floors described in § 3.131(d)(2) and (d)(3).

(1) An equity exposure to an entity whose credit exposures are exempt from the 0.03 percent PD floor in § 3.131(d)(2) is assigned a zero percent risk weight.

(3) A national bank or Federal savings association may elect to recognize the credit risk mitigation benefits of an eligible guarantee or eligible credit derivative covering an exposure described in paragraph (a)(1) of this section by using the PD substitution approach or the LGD adjustment approach in paragraph (c) of this section or, if the transaction qualifies, using the double default treatment in § 3.135. A national bank's or Federal savings association's PD and LGD for the hedged exposure may not be lower than the PD and LGD floors described in § 3.131(d)(2) and (d)(3).

(ii) If the remaining maturity of the exposure or the longest-dated contract in the netting set is one year or less, the national bank or Federal savings association must set M for the exposure or netting set equal to one year, except as provided in § 3.131(d)(7).

(i) A national bank or Federal savings association must have an internal system that groups retail exposures into the appropriate retail exposure subcategory and groups the retail exposures in each retail exposure subcategory into separate segments with homogeneous risk characteristics that provide a meaningful differentiation of risk. The national bank's or Federal savings association's system must identify and group in separate segments by subcategories exposures identified in § 3.131(c)(2)(ii) and (iii).