---
kind: "section"
citation: "12 C.F.R. § 324.209"
title: "12"
number: "324.209"
heading: "Comprehensive risk."
url: "https://uscodex.org/cfr/12/324.209"
---

# §324.209. Comprehensive risk.

- (a) **General requirement.**
  - (1) Subject to the prior approval of the FDIC, an FDIC-supervised institution may use the method in this section to measure comprehensive risk, that is, all price risk, for one or more portfolios of correlation trading positions.
  - (2) An FDIC-supervised institution that measures the price risk of a portfolio of correlation trading positions using internal models must calculate at least weekly a comprehensive risk measure that captures all price risk according to the requirements of this section. The comprehensive risk measure is either:
    - (i) **The sum of—**
      - (A) The FDIC-supervised institution's modeled measure of all price risk determined according to the requirements in [paragraph (b)](#b) of this section; and
      - (B) A surcharge for the FDIC-supervised institution's modeled correlation trading positions equal to the total specific risk add-on for such positions as calculated under [§ 324.210](/cfr/12/324.210.md) multiplied by 8.0 percent; or
    - (ii) With approval of the FDIC and provided the FDIC-supervised institution has met the requirements of this section for a period of at least one year and can demonstrate the effectiveness of the model through the results of ongoing model validation efforts including robust benchmarking, the greater of:
      - (A) The FDIC-supervised institution's modeled measure of all price risk determined according to the requirements in [paragraph (b)](#b) of this section; or
      - (B) The total specific risk add-on that would apply to the bank's modeled correlation trading positions as calculated under [§ 324.210](/cfr/12/324.210.md) multiplied by 8.0 percent.
- (b) **Requirements for modeling all price risk.** If an FDIC-supervised institution uses an internal model to measure the price risk of a portfolio of correlation trading positions:
  - (1) The internal model must measure comprehensive risk over a one-year time horizon at a one-tail, 99.9 percent confidence level, either under the assumption of a constant level of risk, or under the assumption of constant positions.
  - (2) The model must capture all material price risk, including but not limited to the following:
    - (i) The risks associated with the contractual structure of cash flows of the position, its issuer, and its underlying exposures;
    - (ii) Credit spread risk, including nonlinear price risks;
    - (iii) The volatility of implied correlations, including nonlinear price risks such as the cross-effect between spreads and correlations;
    - (iv) Basis risk;
    - (v) Recovery rate volatility as it relates to the propensity for recovery rates to affect tranche prices; and
    - (vi) To the extent the comprehensive risk measure incorporates the benefits of dynamic hedging, the static nature of the hedge over the liquidity horizon must be recognized. In such cases, an FDIC-supervised institution must:
      - (A) Choose to model the rebalancing of the hedge consistently over the relevant set of trading positions;
      - (B) Demonstrate that the inclusion of rebalancing results in a more appropriate risk measurement;
      - (C) Demonstrate that the market for the hedge is sufficiently liquid to permit rebalancing during periods of stress; and
      - (D) Capture in the comprehensive risk model any residual risks arising from such hedging strategies;
  - (3) The FDIC-supervised institution must use market data that are relevant in representing the risk profile of the FDIC-supervised institution's correlation trading positions in order to ensure that the FDIC-supervised institution fully captures the material risks of the correlation trading positions in its comprehensive risk measure in accordance with this section; and
  - (4) The FDIC-supervised institution must be able to demonstrate that its model is an appropriate representation of comprehensive risk in light of the historical price variation of its correlation trading positions.
- (c) **Requirements for stress testing.**
  - (1) An FDIC-supervised institution must at least weekly apply specific, supervisory stress scenarios to its portfolio of correlation trading positions that capture changes in:
    - (i) Default rates;
    - (ii) Recovery rates;
    - (iii) Credit spreads;
    - (iv) Correlations of underlying exposures; and
    - (v) **Correlations of a correlation trading position and its hedge.**
  - (2) **Other requirements.**
    - (i) An FDIC-supervised institution must retain and make available to the FDIC the results of the supervisory stress testing, including comparisons with the capital requirements generated by the FDIC-supervised institution's comprehensive risk model.
    - (ii) An FDIC-supervised institution must report to the FDIC promptly any instances where the stress tests indicate any material deficiencies in the comprehensive risk model.
- (d) **Calculation of comprehensive risk capital requirement.** The comprehensive risk capital requirement is the greater of:
  - (1) The average of the comprehensive risk measures over the previous 12 weeks; or
  - (2) **The most recent comprehensive risk measure.**

## Notes

### Authority

Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233, 105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note), Pub. L. 115-174; section 4014 § 201, Pub. L. 116-136, 134 Stat. 281 (15 U.S.C. 9052).

### Source

Source: 78 FR 55471, Sept. 10, 2013, unless otherwise noted.