US Codex
C.F.R.
Browse by date

View an earlier version

Latest
Current
Browse all versions by date
Notes

12 C.F.R. §§ 702.103–702.105

3 sections in range

§702.103. Applicability of risk-based capital measures.

12 C.F.R. § 702.103

For purposes of § 702.102, a credit union is defined as “complex” and a risk-based capital measure is applicable only if the credit union's quarter-end total assets exceed five hundred million dollars ($500,000,000), as reflected in its most recent Call Report. A complex credit union may calculate its risk-based capital measure either by using the risk-based capital ratio under § 702.104(a) through (c), or, for a qualifying complex credit union opting into the CCULR framework, by using the CCULR framework under § 702.104(d).
Notes, amendments, and revision history

Amendments

[86 FR 72805, Dec. 23, 2021]

Source

Source: 80 FR 66706, Oct. 29, 2015, unless otherwise noted.

Authority

Authority: 12 U.S.C. 1757(9), 1766(a), 1784(a), 1786(e), 1790d.

Source

Source: 65 FR 8584, Feb. 18, 2000, unless otherwise noted.

Amendments

[86 FR 72805, Dec. 23, 2021]

§702.104. Risk-based capital ratio.

12 C.F.R. § 702.104

A complex credit union must calculate its risk-based capital measure in accordance with this section. A complex credit union may calculate its risk-based capital measure either by using the risk-based capital ratio under paragraphs (a) through (c) of this section, or, for a qualifying complex credit union opting into the CCULR framework, by using the CCULR framework under paragraph (d) of this section.
(a)
Calculation of the risk-based capital ratio. To determine its risk-based capital ratio, a complex credit union must calculate the percentage, rounded to two decimal places, of its risk-based capital ratio numerator as described in paragraph (b) of this section, to its total risk-weighted assets as described in paragraph (c) of this section.
(b)
Risk-based capital ratio numerator. The risk-based capital ratio numerator is the sum of the specific capital elements in paragraph (b)(1) of this section, minus the regulatory adjustments in paragraph (b)(2) of this section.
(1)
Capital elements of the risk-based capital ratio numerator. The capital elements of the risk-based capital numerator are:
(i)
Undivided earnings;
(ii)
Appropriation for non-conforming investments;
(iii)
Other reserves;
(iv)
Equity acquired in merger;
(v)
Net income
(vi)
ALLL, maintained in accordance with GAAP;
(vii)
The outstanding principal amount of Subordinated Debt treated as Regulatory Capital in accordance with § 702.407 and the outstanding principal amount of Grandfathered Secondary Capital treated as Regulatory Capital in accordance with § 702.414; and
(viii)
Section 208 assistance included in net worth (as defined in § 702.2).
(2)
Risk-based capital ratio numerator deductions. The elements deducted from the sum of the capital elements of the risk-based capital ratio numerator are:
(i)
NCUSIF Capitalization Deposit;
(ii)
Goodwill;
(iii)
Other intangible assets;
(iv)
Identified losses not reflected in the risk-based capital ratio numerator; and
(v)
Mortgage servicing assets that exceed 25 percent of the sum of the capital elements in paragraph (b)(1) of this section, less deductions required under paragraphs (b)(2)(i) thorough (iv) of this section.
(c)
Risk-weighted assets—
(1)
General. Risk-weighted assets includes risk- weighted on-balance sheet assets as described in paragraphs (c)(2) and (3) of this section, plus the risk-weighted off-balance sheet assets in paragraph (c)(4) of this section, plus the risk-weighted derivatives in paragraph (c)(5) of this section, less the risk-based capital ratio numerator deductions in paragraph (b)(2) of this section. If a particular asset, derivative contract, or off balance sheet item has features or characteristics that suggest it could potentially fit into more than one risk weight category, then a credit union shall assign the asset, derivative contract, or off balance sheet item to the risk weight category that most accurately and appropriately reflects its associated credit risk.
(2)
Risk weights for on-balance sheet assets. The risk categories and weights for assets of a complex credit union are as follows:
(i)
Category 1—zero percent risk weight. A credit union must assign a zero percent risk weight to:
(A)
The balance of— (1) Cash, currency and coin, including vault, automatic teller machine, and teller cash.

(2) share-secured loans, where the shares securing the loan are on deposit with the credit union.

(B)
The exposure amount of— (1) An obligation of the U.S. Government, its central bank, or a U.S. Government agency that is directly and unconditionally guaranteed, excluding detached security coupons, ex-coupon securities, and interest-only mortgage-backed-security STRIPS.

(2) Federal Reserve Bank stock and Central Liquidity Facility stock.

(3) An obligation of the Bank for International Settlements, the European Central Bank, the European Commission, the International Monetary Fund, the European Stability Mechanism, the European Financial Stability Facility, or an MDB.

(C)
Insured balances due from FDIC-insured depositories or federally insured credit unions.
(D)
Covered loans issued under the Small Business Administration's Paycheck Protection Program, 15 U.S.C. 636(a)(36).
(ii)
Category 2—20 percent risk weight. A credit union must assign a 20 percent risk weight to:
(A)
The uninsured balances due from FDIC-insured depositories, federally insured credit unions, and all balances due from privately-insured credit unions.
(B)
The exposure amount of— (1) A non-subordinated obligation of the U.S. Government, its central bank, or a U.S. Government agency that is conditionally guaranteed, excluding interest-only mortgage-backed-security STRIPS.

(2) A non-subordinated obligation of a GSE other than an equity exposure or preferred stock, excluding interest-only GSE mortgage-backed-security STRIPS.

(3) Securities issued by PSEs that represent general obligation securities.

(4) Part 703 compliant investment funds that are restricted to holding only investments that qualify for a zero or 20 percent risk-weight under this section.

(5) Federal Home Loan Bank stock.

(C)
The balances due from Federal Home Loan Banks.
(D)
The balance of share-secured loans, where the shares securing the loan are on deposit with another depository institution.
(E)
The portions of outstanding loans with a government guarantee.
(F)
The portions of commercial loans secured with contractual compensating balances.
(iii)
Category 3—50 percent risk weight. A credit union must assign a 50 percent risk weight to:
(A)
The outstanding balance (net of government guarantees), including loans held for sale, of current first-lien residential real estate loans less than or equal to 35 percent of assets.
(B)
The exposure amount of— (1) Securities issued by PSEs in the U.S. that represent non-subordinated revenue obligation securities.

(2) Other non-subordinated, non-U.S. Government agency or non-GSE guaranteed, residential mortgage-backed security, excluding interest-only mortgage-backed security STRIPS.

(iv)
Category 4—75 percent risk weight. A credit union must assign a 75 percent risk weight to the outstanding balance (net of government guarantees), including loans held for sale, of:
(A)
Current first-lien residential real estate loans greater than 35 percent of assets.
(B)
Current secured consumer loans.
(v)
Category 5—100 percent risk weight. A credit union must assign a 100 percent risk weight to:
(A)
The outstanding balance (net of government guarantees), including loans held for sale, of— (1) First-lien residential real estate loans that are not current.

(2) Current junior-lien residential real estate loans less than or equal to 20 percent of assets.

(3) Current unsecured consumer loans.

(4) Current commercial loans, less contractual compensating balances that comprise less than 50 percent of assets.

(5) Loans to CUSOs.

(B)
The exposure amount of— (1) Industrial development bonds.

(2) Interest-only mortgage-backed security STRIPS.

(3) Part 703 compliant investment funds, with the option to use the look-through approaches in paragraph (c)(3)(iii)(B) of this section.

(4) Corporate debentures and commercial paper.

(5) Nonperpetual capital at corporate credit unions.

(6) General account permanent insurance.

(7) GSE equity exposure or preferred stock.

(8) Non-subordinated tranches of any investment, with the option to use the gross-up approach in paragraph (c)(3)(iii)(A) of this section.

(9) Natural person credit union Subordinated Debt, Grandfathered Secondary Capital, and loans or obligations issued by a privately insured credit union that are subordinate to the private insurer.

(C)
All other assets listed on the statement of financial condition not specifically assigned a different risk weight under this subpart.
(vi)
Category 6—150 percent risk weight. A credit union must assign a 150 percent risk weight to:
(A)
The outstanding balance, net of government guarantees and including loans held for sale, of— (1) Current junior-lien residential real estate loans that comprise more than 20 percent of assets.

(2) Junior-lien residential real estate loans that are not current.

(3) Consumer loans that are not current.

(4) Current commercial loans (net of contractual compensating balances), which comprise more than 50 percent of assets.

(5) Commercial loans (net of contractual compensating balances), which are not current.

(B)
The exposure amount of— (1) Perpetual contributed capital at corporate credit unions.

(2) Equity investments in CUSOs.

(vii)
Category 7— 250 percent risk weight. A credit union must assign a 250 percent risk weight to the carrying value of mortgage servicing assets not deducted from the risk-based capital numerator pursuant to § 702.104(b).
(viii)
Category 8—300 percent risk weight. A credit union must assign a 300 percent risk weight to the exposure amount of:
(A)
Publicly traded equity investments, other than a CUSO investment.
(B)
Investment funds that do not meet the requirements under § 703.14(c) of this chapter, with the option to use the look-through approaches in paragraph (c)(3)(iii)(B) of this section.
(C)
Separate account insurance, with the option to use the look-through approaches in paragraph (c)(3)(iii)(B) of this section.
(ix)
Category 9— 400 percent risk weight. A credit union must assign a 400 percent risk weight to the exposure amount of non-publicly traded equity investments, other than equity investments in CUSOs.
(x)
Category 10—1,250 percent risk weight. A credit union must assign a 1,250 percent risk weight to the exposure amount of any subordinated tranche of any investment, with the option to use the gross-up approach in paragraph (c)(3)(iii)(A) of this section. However, a credit union may not use the gross-up approach for non-security beneficial interests.
(3)
Alternative risk weights for certain on-balance sheet assets—
(i)
Non-significant equity exposures—
(A)
General. Notwithstanding the risk weights assigned in paragraph (c)(2) of this section, a credit union must assign a 100 percent risk weight to non-significant equity exposures.
(B)
Determination of non-significant equity exposures. A credit union has non-significant equity exposures if the aggregate amount of its equity exposures does not exceed 10 percent of the sum of the credit union's capital elements of the risk-based capital ratio numerator (as defined under paragraph (b)(1) of this section).
(C)
Determination of the aggregate amount of equity exposures. When determining the aggregate amount of its equity exposures, a credit union must include the total amounts (as recorded on the statement of financial condition in accordance with GAAP) of the following:

(1) Equity investments in CUSOs,

(2) Perpetual contributed capital at corporate credit unions,

(3) Nonperpetual capital at corporate credit unions, and

(4) Equity investments subject to a risk weight in excess of 100 percent.

(ii)
Charitable donation accounts. Notwithstanding the risk weights assigned in paragraph (c)(2) of this section, a credit union may assign a 100 percent risk weight to a charitable donation account.
(iii)
Alternative approaches. Notwithstanding the risk weights assigned in paragraph (c)(2) of this section, a credit union may determine the risk weight of investment funds, and non-subordinated or subordinated tranches of any investment as follows:
(A)
Gross-up approach. A credit union may use the gross-up approach under appendix A of this part to determine the risk weight of the carrying value of non-subordinated or subordinated tranches of any investment.
(B)
Look-through approaches. A credit union may use one of the look-through approaches under appendix A of this part to determine the risk weight of the exposure amount of any investment funds, the holdings of separate account insurance, or both.
(4)
Risk weights for off-balance sheet items. The risk weighted amounts for all off-balance sheet items are determined by multiplying the off-balance sheet exposure amount by the appropriate CCF and the assigned risk weight as follows:
(i)
For the outstanding balance of loans transferred to a Federal Home Loan Bank under the mortgage partnership finance program, a 20 percent CCF and a 50 percent risk weight.
(ii)
For other loans transferred with limited recourse, a 100 percent CCF applied to the off-balance sheet exposure and:
(A)
For commercial loans, a 100 percent risk weight.
(B)
For first-lien residential real estate loans, a 50 percent risk weight.
(C)
For junior-lien residential real estate loans, a 100 percent risk weight.
(D)
For all secured consumer loans, a 75 percent risk weight.
(E)
For all unsecured consumer loans, a 100 percent risk weight.
(iii)
For unfunded commitments—
(A)
For a commitment that is unconditionally cancelable, a 0 percent CCF.
(B)
For commercial loans, a 50 percent CCF with a 100 percent risk weight.
(C)
For first-lien residential real estate loans, a 10 percent CCF with a 50 percent risk weight.
(D)
For junior-lien residential real estate loans, a 10 percent CCF with a 100 percent risk weight.
(E)
For all secured consumer loans, a 10 percent CCF with a 75 percent risk weight.
(F)
For all unsecured consumer loans, a 10 percent CCF with a 100 percent risk weight.
(iv)
For financial standby letter of credits, a 100 percent CCF and a 100 percent risk weight.
(v)
For forward agreements that are not derivative contracts, a 100 percent CCF and a 100 percent risk weight.
(vi)
For sold credit protection through guarantees and credit derivatives, a 100 percent CCF and a 100 percent risk weight for guarantees; for credit derivatives the risk weight is determined by the applicable provisions of 12 CFR 324.34 or 324.35.
(vii)
For off-balance sheet securitization exposures, a 100 percent CCF, and the risk weight is determined as if the exposure is an on-balance sheet securitization exposure.
(viii)
For securities borrowing or lending transactions, a 100 percent CCF and a 100 percent risk weight. A credit union may recognize the credit risk mitigation benefits of financial collateral, as defined under 12 CFR 324.2, by risk weighting the collateralized portion of the exposure under the applicable provisions of 12 CFR 324.35 or 324.37.
(ix)
For the off-balance sheet portion of repurchase transactions, a 100 percent CCF and a 100 percent risk weight. A credit union may recognize the credit risk mitigation benefits of financial collateral, as defined by 12 CFR 324.2, by risk weighting the collateralized portion of the exposure under the applicable provisions of 12 CFR 324.35 or 324.37.
(x)
For all other off-balance sheet exposures not explicitly provided a CCF or risk weight in this paragraph (c) that meet the definition of a commitment, a 100 percent CCF and a 100 percent risk weight.
(5)
Derivative contracts. A complex credit union must assign a risk-weighted amount to any derivative contracts as determined under § 702.105.
(6)
Asset Securitizations Issued by Complex Credit Unions. A credit union must follow the requirements of the applicable provisions of 12 CFR 324.41 when it transfers exposures in connection with a securitization. A credit union may only exclude the transferred exposures from the calculation of its risk-weighted assets if each condition in 12 CFR 324.41 is satisfied. A credit union that meets these conditions, but retains any credit risk for the transferred exposures, must hold risk-based capital against the credit risk it retains in connection with the securitization.
(d)
Complex Credit Union Leverage Ratio (CCULR) Framework—
(1)
General. A qualifying complex credit union that has opted into the CCULR framework under paragraph (d)(5) of this section is considered to have met the capital ratio requirements for the well capitalized capital category under § 702.102(a)(1) if it has a CCULR of 9.0 percent or greater.
(2)
Qualifying Complex Credit Union. For purposes of this part, a qualifying complex credit union means a complex credit union under § 702.103 that satisfies all of the following criteria:
(i)
Has a CCULR of 9.0 percent or greater;
(ii)
Has total off-balance sheet exposures of 25 percent or less of its total assets;
(iii)
Has the sum of total trading assets and total trading liabilities of 5 percent or less of its total assets; and
(iv)
Has the sum of total goodwill and total other intangible assets of 2 percent or less of its total assets.
(3)
Calculation of Qualifying Criteria. Each of the qualifying criteria in paragraph (d)(2) of this section is calculated based on data reported in the Call Report as of the end of the most recent calendar quarter.
(4)
Calculation of the CCULR. A qualifying complex credit union opting into the CCULR framework under this paragraph (d) calculates its CCULR in the same manner as its net worth ratio under § 702.2.
(5)
Opting into the CCULR Framework.
(i)
A qualifying complex credit union may opt into the CCULR framework by completing the applicable reporting requirements of its Call Report.
(ii)
A qualifying complex credit union can opt into the CCULR framework at the end of each calendar quarter.
(6)
Opting Out of the CCULR Framework.
(i)
A qualifying complex credit union may voluntarily opt out of the framework at the end of each calendar quarter.
(ii)
[Reserved]
(7)
Treatment when ceasing to meet the qualifying complex credit union requirements.
(i)
If a qualifying complex credit union that has opted into the CCULR framework ceases to meet the qualifying criteria in paragraph (d)(2) of this section, the credit union has two calendar quarters (grace period) either to satisfy the requirements to be a qualifying complex credit union or to calculate its risk-based capital ratio under paragraphs (a) through (c) of this section.
(ii)
The grace period begins at the end of the calendar quarter in which the credit union no longer satisfies the criteria to be a qualifying complex credit union. The grace period ends on the last day of the second consecutive calendar quarter following the beginning of the grace period.
(iii)
During the grace period, the credit union continues to be treated as a qualifying complex credit union for the purpose of this part and must continue calculating and reporting its CCULR, unless the qualifying complex credit union has opted out of using the CCULR framework under paragraph (d)(6) of this section. The qualifying complex credit union also continues to be considered to have met the capital ratio requirements for the well capitalized capital category under § 702.102(a)(1). However, if the qualifying complex credit union has a CCULR of less than seven percent, it will not be considered to have met the capital ratio requirements for the well capitalized capital category under § 702.102(a)(1) and its capital classification is determined by its net worth ratio.
(iv)
[Reserved]
(v)
A qualifying complex credit union that ceases to meet the qualifying criteria in paragraph (d)(2) of this section as a result of a merger or acquisition that is not a supervisory merger or combination has no grace period and must comply with the risk-based capital ratio under paragraphs (a) through (c) of this section in the quarter it ceases to be a qualifying complex credit union.
(e)
Reservation of authority. The NCUA may require a complex credit union that otherwise would meet the definition of a qualifying complex credit union to comply with the risk-based capital ratio under paragraphs (a) through (c) of this section if the NCUA determines that the complex credit union's capital requirements under paragraph (d) of this section are not commensurate with its risks. Any credit union required to comply with the risk-based capital ratio under this paragraph (e), would be permitted a minimum of a two-quarter grace period before being subject to risk-based capital requirements.
Notes, amendments, and revision history

Amendments

[80 FR 66706, Oct. 29, 2015, as amended at 86 FR 11073, Feb. 23, 2021; 86 FR 72805, Dec. 23, 2021]

Source

Source: 80 FR 66706, Oct. 29, 2015, unless otherwise noted.

Authority

Authority: 12 U.S.C. 1757(9), 1766(a), 1784(a), 1786(e), 1790d.

Source

Source: 65 FR 8584, Feb. 18, 2000, unless otherwise noted.

Amendments

[80 FR 66706, Oct. 29, 2015, as amended at 86 FR 11073, Feb. 23, 2021; 86 FR 72805, Dec. 23, 2021]

§702.105. Derivative contracts.

12 C.F.R. § 702.105

(a)
OTC interest rate derivative contracts—
(1)
Exposure amount—
(i)
Single OTC interest rate derivative contract. Except as modified by paragraph (a)(2) of this section, the exposure amount for a single OTC interest rate derivative contract that is not subject to a qualifying master netting agreement is equal to the sum of the credit union's current credit exposure and potential future credit exposure (PFE) on the OTC interest rate derivative contract.
(A)
Current credit exposure. The current credit exposure for a single OTC interest rate derivative contract is the greater of the fair value of the OTC interest rate derivative contract or zero.
(B)
PFE. (1) The PFE for a single OTC interest rate derivative contract, including an OTC interest rate derivative contract with a negative fair value, is calculated by multiplying the notional principal amount of the OTC interest rate derivative contract by the appropriate conversion factor in Table 1 of this section.

(2) A credit union must use an OTC interest rate derivative contract's effective notional principal amount (that is, the apparent or stated notional principal amount multiplied by any multiplier in the OTC interest rate derivative contract) rather than the apparent or stated notional principal amount in calculating PFE.

(ii)
Multiple OTC interest rate derivative contracts subject to a qualifying master netting agreement. Except as modified by paragraph (a)(2) of this section, the exposure amount for multiple OTC interest rate derivative contracts subject to a qualifying master netting agreement is equal to the sum of the net current credit exposure and the adjusted sum of the PFE amounts for all OTC interest rate derivative contracts subject to the qualifying master netting agreement.
(A)
Net current credit exposure. The net current credit exposure is the greater of the net sum of all positive and negative fair value of the individual OTC interest rate derivative contracts subject to the qualifying master netting agreement or zero.
(B)
Adjusted sum of the PFE amounts (Anet). The adjusted sum of the PFE amounts is calculated as Anet = (0.4 × Agross) + (0.6 × NGR × Agross), where:

(1) Agross equals the gross PFE (that is, the sum of the PFE amounts as determined under paragraph (a)(1)(i)(B) of this section for each individual derivative contract subject to the qualifying master netting agreement); and

(2) Net-to-gross Ratio (NGR) equals the ratio of the net current credit exposure to the gross current credit exposure. In calculating the NGR, the gross current credit exposure equals the sum of the positive current credit exposures (as determined under paragraph (a)(1)(i) of this section) of all individual derivative contracts subject to the qualifying master netting agreement.

(2)
Recognition of credit risk mitigation of collateralized OTC derivative contracts. A credit union may recognize credit risk mitigation benefits of financial collateral that secures an OTC derivative contract or multiple OTC derivative contracts subject to a qualifying master netting agreement (netting set) by following the requirements of paragraph (c) of this section.
(b)
Cleared transactions for interest rate derivatives—
(1)
General requirements. A credit union must use the methodologies described in paragraph (b) of this section to calculate risk-weighted assets for a cleared transaction.
(2)
Risk-weighted assets for cleared transactions.
(i)
To determine the risk weighted asset amount for a cleared transaction, a credit union must multiply the trade exposure amount for the cleared transaction, calculated in accordance with paragraph (b)(3) of this section, by the risk weight appropriate for the cleared transaction, determined in accordance with paragraph (b)(4) of this section.
(ii)
A credit union's total risk-weighted assets for cleared transactions is the sum of the risk-weighted asset amounts for all its cleared transactions.
(3)
Trade exposure amount. For a cleared transaction the trade exposure amount equals:
(i)
The exposure amount for the derivative contract or netting set of derivative contracts, calculated using the methodology used to calculate exposure amount for OTC interest rate derivative contracts under paragraph (a) of this section; plus
(ii)
The fair value of the collateral posted by the credit union and held by the, clearing member, or custodian.
(4)
Cleared transaction risk weights. A credit union must apply a risk weight of:
(i)
Two percent if the collateral posted by the credit union to the DCO or clearing member is subject to an arrangement that prevents any losses to the credit union due to the joint default or a concurrent insolvency, liquidation, or receivership proceeding of the clearing member and any other clearing member clients of the clearing member; and the clearing member credit union has conducted sufficient legal review to conclude with a well-founded basis (and maintains sufficient written documentation of that legal review) that in the event of a legal challenge (including one resulting from an event of default or from liquidation, insolvency, or receivership proceedings) the relevant court and administrative authorities would find the arrangements to be legal, valid, binding and enforceable under the law of the relevant jurisdictions; or
(ii)
Four percent if the requirements of paragraph (b)(4)(i) are not met.
(5)
Recognition of credit risk mitigation of collateralized OTC derivative contracts. A credit union may recognize the credit risk mitigation benefits of financial collateral that secures a cleared derivative contract by following the requirements of paragraph (c) of this section.
(c)
Recognition of credit risk mitigation of collateralized interest rate derivative contracts.
(1)
A credit union may recognize the credit risk mitigation benefits of financial collateral that secures an OTC interest rate derivative contract or multiple interest rate derivative contracts subject to a qualifying master netting agreement (netting set) or clearing arrangement by using the simple approach in paragraph (c)(3) of this section.
(2)
As an alternative to the simple approach, a credit union may recognize the credit risk mitigation benefits of financial collateral that secures such a contract or netting set if the financial collateral is marked-to-fair value on a daily basis and subject to a daily margin maintenance requirement by applying a risk weight to the exposure as if it were uncollateralized and adjusting the exposure amount calculated under paragraph (a) or (b) of this section using the collateral approach in paragraph (c)(3) of this section. The credit union must substitute the exposure amount calculated under paragraphs (b) or (c) of this section in the equation in paragraph (c)(3) of this section.
(3)
Collateralized transactions—
(i)
General. A credit union may use the approach in paragraph (c)(3)(ii) of this section to recognize the risk-mitigating effects of financial collateral.
(ii)
Simple collateralized derivatives approach. To qualify for the simple approach, the financial collateral must meet the following requirements:
(A)
The collateral must be subject to a collateral agreement for at least the life of the exposure;
(B)
The collateral must be revalued at least every six months; and
(C)
The collateral and the exposure must be denominated in the same currency.
(iii)
Risk weight substitution.
(A)
A credit union may apply a risk weight to the portion of an exposure that is secured by the fair value of financial collateral (that meets the requirements for the simple collateralized approach of this section) based on the risk weight assigned to the collateral as established under § 702.104(c).
(B)
A credit union must apply a risk weight to the unsecured portion of the exposure based on the risk weight applicable to the exposure under this subpart.
(iv)
Exceptions to the 20 percent risk weight floor and other requirements. Notwithstanding the simple collateralized derivatives approach in paragraph (c)(3)(ii) of this section:
(A)
A credit union may assign a zero percent risk weight to an exposure to a derivatives contract that is marked-to-market on a daily basis and subject to a daily margin maintenance requirement, to the extent the contract is collateralized by cash on deposit.
(B)
A credit union may assign a 10 percent risk weight to an exposure to a derivatives contract that is marked-to-market daily and subject to a daily margin maintenance requirement, to the extent that the contract is collateralized by an exposure that qualifies for a zero percent risk weight under § 702.104(c)(2)(i).
(v)
A credit union may assign a zero percent risk weight to the collateralized portion of an exposure where:
(A)
The financial collateral is cash on deposit; or
(B)
The financial collateral is an exposure that qualifies for a zero percent risk weight under § 702.104(c)(2)(i), and the credit union has discounted the fair value of the collateral by 20 percent.
(4)
Collateral haircut approach.
(i)
A credit union may recognize the credit risk mitigation benefits of financial collateral that secures a collateralized derivative contract by using the standard supervisory haircuts in paragraph (c)(3) of this section.
(ii)
The collateral haircut approach applies to both OTC and cleared interest rate derivatives contracts discussed in this section.
(iii)
A credit union must determine the exposure amount for a collateralized derivative contracts by setting the exposure amount equal to the max {0,[(exposure amount − value of collateral) + (sum of current fair value of collateral instruments * market price volatility haircut of the collateral instruments)]}, where:
(A)
The value of the exposure equals the exposure amount for OTC interest rate derivative contracts (or netting set) calculated under paragraphs (a)(1)(i) and (ii) of this section.
(B)
The value of the exposure equals the exposure amount for cleared interest rate derivative contracts (or netting set) calculated under paragraph (b)(3) of this section.
(C)
The value of the collateral is the sum of cash and all instruments under the transaction (or netting set).
(D)
The sum of current fair value of collateral instruments as of the measurement date.
(E)
A credit union must use the standard supervisory haircuts for market price volatility in Table 2 to this section.
(d)
All other derivative contracts and transactions. Credit unions must follow the requirements of the applicable provisions of 12 CFR part 324, when assigning risk weights to exposure amounts for derivatives contracts not addressed in paragraphs (a) or (b) of this section.
Notes, amendments, and revision history

Source

Source: 80 FR 66706, Oct. 29, 2015, unless otherwise noted.

Authority

Authority: 12 U.S.C. 1757(9), 1766(a), 1784(a), 1786(e), 1790d.

Source

Source: 65 FR 8584, Feb. 18, 2000, unless otherwise noted.