§3.143. Supervisory formula approach (SFA). — Inbound Citations

(2) Wholesale exposures on which there is a tranching of credit risk (reflecting at least two different levels of seniority) are securitization exposures subject to §§ 3.141 through 3.145.

(2) If a securitization exposure does not require deduction or a 1,250 percent risk weight under paragraph (a)(1) of this section, the national bank or Federal savings association must apply the supervisory formula approach in § 3.143 to the exposure if the national bank or Federal savings association and the exposure qualify for the supervisory formula approach according to § 3.143(a);

(1) A national bank or Federal savings association may recognize financial collateral in determining the national bank's or Federal savings association'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 national bank or Federal savings association has reflected collateral in its determination of exposure amount under § 3.132) as follows. The national bank's or Federal savings association'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 § 3.144 or under the SFA in § 3.143 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 § 3.142(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.

(A) (1) A national bank or Federal savings association that is not an advanced approaches national bank or Federal savings association must assign a specific risk-weighting factor to a securitization position using either the simplified supervisory formula approach (SSFA) in paragraph (b)(2)(vii)(C) of this section (and § 3.211) or assign a specific risk-weighting factor of 100 percent to the position.

(2) A national bank or Federal savings association that is an advanced approaches national bank or Federal savings association must calculate a specific risk add-on for a securitization position in accordance with paragraph (b)(2)(vii)(B) of this section if the national bank or Federal savings association and the securitization position each qualifies to use the SFA in § 3.143. A national bank or Federal savings association that is an advanced approaches national bank or Federal savings association with a securitization position that does not qualify for the SFA under paragraph (b)(2)(vii)(B) of this section may assign a specific risk-weighting factor to the securitization position using the SSFA in accordance with paragraph (b)(2)(vii)(C) of this section or assign a specific risk-weighting factor of 100 percent to the position.

(3) A national bank or Federal savings association must treat a short securitization position as if it is a long securitization position solely for calculation purposes when using the SFA in paragraph (b)(2)(vii)(B) of this section or the SSFA in paragraph (b)(2)(vii)(C) of this section.

(2) If a securitization exposure does not require deduction or a 1,250 percent risk weight under paragraph (a)(1) of this section, the national bank or Federal savings association must apply the supervisory formula approach in § 3.143 to the exposure if the national bank or Federal savings association and the exposure qualify for the supervisory formula approach according to § 3.143(a);

(2) Under the conditions in §§ 3.143(f)(3) and (f)(4), a national bank or Federal savings association may employ a simplified method for calculating N and EWALGD.

(2) Under the conditions in §§ 3.143(f)(3) and (f)(4), a national bank or Federal savings association may employ a simplified method for calculating N and EWALGD.