Terms that are set forth in § 217.2 and used in this subpart have the definitions assigned thereto in § 217.2.
For the purposes of this subpart, the following terms are defined as follows:
means the comparison of a Board-regulated institution
's internal estimates with actual outcomes during a sample period not used in model development. In this context, backtesting
is one form of out-of-sample testing.
means the comparison of a Board-regulated institution
's internal estimates with relevant internal and external data or with estimates based on other estimation techniques.
Bond option contract means a bond option, bond future, or any other instrument linked to a bond that gives rise to similar counterparty credit risk.
Credit default swap (CDS) means a financial contract executed under standard industry documentation that allows one party (the protection purchaser) to transfer the credit risk of one or more exposures (reference exposure(s)) to another party (the protection provider) for a certain period of time.
Credit valuation adjustment (CVA) means the fair value adjustment to reflect counterparty credit risk in valuation of OTC derivative contracts.
Default—For the purposes of calculating capital requirements under this subpart:
The exposure is 120 days past due, in the case of retail exposures that are not residential mortgage exposures or revolving exposures; or
The Board-regulated institution has taken a full or partial charge-off, write-down of principal, or material negative fair value adjustment of principal on the exposure for credit-related reasons.
Notwithstanding paragraph (1)(i) of this definition, for a retail exposure held by a non-U.S. subsidiary of the Board-regulated institution that is subject to an internal ratings-based approach to capital adequacy consistent with the Basel Committee on Banking Supervision's “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” in a non-U.S. jurisdiction, the Board-regulated institution may elect to use the definition of default that is used in that jurisdiction, provided that the Board-regulated institution has obtained prior approval from the Board to use the definition of default in that jurisdiction.
A retail exposure in default remains in default until the Board-regulated institution has reasonable assurance of repayment and performance for all contractual principal and interest payments on the exposure.
Overdrafts are past due once the obligor
has breached an advised limit or been advised of a limit smaller than the current outstanding balance.
Dependence means a measure of the association among operational losses across and within units of measure.
Economic downturn conditions
means, with respect to an exposure held by the Board-regulated institution
, those conditions in which the aggregate default rates for that exposure's wholesale or retail exposure subcategory
(or subdivision of such subcategory selected by the Board
-regulated institution) in the exposure's national jurisdiction (or subdivision of such jurisdiction selected by the Board
-regulated institution) are significantly higher than average.
For wholesale exposures other than repo-style transactions, eligible margin loans, and OTC derivative contracts described in paragraph (2) or (3) of this definition:
The weighted-average remaining maturity (measured in years, whole or fractional) of the expected contractual cash flows from the exposure, using the undiscounted amounts of the cash flows as weights; or
The nominal remaining maturity (measured in years, whole or fractional) of the exposure.
For repo-style transactions, eligible margin loans, and OTC derivative contracts subject to a qualifying master netting agreement for which the Board-regulated institution does not apply the internal models approach in section 132(d), the weighted-average remaining maturity (measured in years, whole or fractional) of the individual transactions subject to the qualifying master netting agreement, with the weight of each individual transaction set equal to the notional amount of the transaction.
Non-U.S.-based entities. A foreign bank, or a non-U.S.-based securities firm if the Board-regulated institution demonstrates that the guarantor is subject to consolidated supervision and regulation comparable to that imposed on U.S. depository institutions, or securities broker-dealers) if at the time the guarantee is issued or anytime thereafter, has issued and outstanding an unsecured debt security without credit enhancement that is investment grade.
Eligible operational risk offsets
means amounts, not to exceed expected operational loss
Are generated by internal business practices to absorb highly predictable and reasonably stable operational losses, including reserves calculated consistent with GAAP; and
Are available to cover expected operational losses with a high degree of certainty over a one-year horizon.
The Board-regulated institution or securitization SPE purchased from an unaffiliated seller and did not directly or indirectly originate;
Was generated on an arm's-length basis between the seller and the obligor (intercompany accounts receivable and receivables subject to contra-accounts between firms that buy and sell to each other do not satisfy this criterion);
Provides the Board-regulated institution or securitization SPE with a claim on all proceeds from the exposure or a pro rata interest in the proceeds from the exposure;
Has an M of less than one year; and
When consolidated by obligor, does not represent a concentrated exposure relative to the portfolio of purchased wholesale exposures.
Expected exposure (EE)
means the expected value of the probability distribution
of non-negative credit risk exposures to a counterparty at any specified future date before the maturity date of the longest term transaction in the netting set
. Any negative fair values in the probability distribution
of fair values to a counterparty at a specified future date are set to zero to convert the probability distribution
of fair values to the probability distribution
of credit risk exposures.
Expected positive exposure (EPE) means the weighted average over time of expected (non-negative) exposures to a counterparty where the weights are the proportion of the time interval that an individual expected exposure represents. When calculating risk-based capital requirements, the average is taken over a one-year horizon.
Exposure at default (EAD) means:
Trade-related letters of credit are short-term, self-liquidating instruments that are used to finance the movement of goods and are collateralized by the underlying goods.
Transaction-related contingencies relate to a particular transaction and include, among other things, performance bonds and performance-based letters of credit.
EAD for OTC derivative contracts is calculated as described in § 217.132. A Board-regulated institution also may determine EAD for repo-style transactions and eligible margin loans as described in § 217.132.
means any of the wholesale, retail, securitization, or equity exposure
Loss given default (LGD) means:
For a segment of retail exposures, the greatest of:
The economic loss on an exposure in the event of default is all material credit-related losses on the exposure (including accrued but unpaid interest or fees, losses on the sale of collateral, direct workout costs, and an appropriate allocation of indirect workout costs). Where positive or negative cash flows on a wholesale exposure to a defaulted obligor or a defaulted retail exposure (including proceeds from the sale of collateral, workout costs, additional extensions of credit to facilitate repayment of the exposure, and draw-downs of unused credit lines) occur after the date of default, the economic loss must reflect the net present value of cash flows as of the default date using a discount rate appropriate to the risk of the defaulted exposure.
Exposures to the same legal entity or natural person denominated in different currencies;
An income-producing real estate exposure for which all or substantially all of the repayment of the exposure is reliant on the cash flows of the real estate serving as collateral for the exposure; the Board-regulated institution, in economic substance, does not have recourse to the borrower beyond the real estate collateral; and no cross-default or cross-acceleration clauses are in place other than clauses obtained solely out of an abundance of caution; and
Other credit exposures to the same legal entity or natural person; and
A wholesale exposure authorized under section 364 of the U.S. Bankruptcy Code (11 U.S.C. 364) to a legal entity or natural person who is a debtor-in-possession for purposes of Chapter 11 of the Bankruptcy Code; and
Other credit exposures to the same legal entity or natural person.
means a loss (excluding insurance or tax effects) resulting from an operational loss event
. Operational loss
includes all expenses associated with an operational loss event
except for opportunity costs, forgone revenue, and costs related to risk management and control
enhancements implemented to prevent future operational losses.
Operational loss event
means an event that results in loss and is associated with any of the following seven operational loss event
Internal fraud, which means the operational loss event type category that comprises operational losses resulting from an act involving at least one internal party of a type intended to defraud, misappropriate property, or circumvent regulations, the law, or company policy excluding diversity- and discrimination-type events.
External fraud, which means the operational loss event type category that comprises operational losses resulting from an act by a third party of a type intended to defraud, misappropriate property, or circumvent the law. Retail credit card losses arising from non-contractual, third-party-initiated fraud (for example, identity theft) are external fraud operational losses. All other third-party-initiated credit losses are to be treated as credit risk losses.
Employment practices and workplace safety, which means the operational loss event type category that comprises operational losses resulting from an act inconsistent with employment, health, or safety laws or agreements, payment of personal injury claims, or payment arising from diversity- and discrimination-type events.
Clients, products, and business practices, which means the operational loss event type category that comprises operational losses resulting from the nature or design of a product or from an unintentional or negligent failure to meet a professional obligation to specific clients (including fiduciary and suitability requirements).
Damage to physical assets, which means the operational loss event type category that comprises operational losses resulting from the loss of or damage to physical assets from natural disaster or other events.
Business disruption and system failures, which means the operational loss event type category that comprises operational losses resulting from disruption of business or system failures.
Execution, delivery, and process management, which means the operational loss event type category that comprises operational losses resulting from failed transaction processing or process management or losses arising from relations with trade counterparties and vendors.
Operational risk means the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events (including legal risk but excluding strategic and reputational risk).
An exposure to an individual for non-business purposes; or
Probability of default (PD) means:
For a wholesale exposure to a non-defaulted obligor, the Board-regulated institution's empirically based best estimate of the long-run average one-year default rate for the rating grade assigned by the Board-regulated institution to the obligor, capturing the average default experience for obligors in the rating grade over a mix of economic conditions (including economic downturn conditions) sufficient to provide a reasonable estimate of the average one-year default rate over the economic cycle for the rating grade.
For a segment of non-defaulted retail exposures, the Board-regulated institution's empirically based best estimate of the long-run average one-year default rate for the exposures in the segment, capturing the average default experience for exposures in the segment over a mix of economic conditions (including economic downturn conditions) sufficient to provide a reasonable estimate of the average one-year default rate over the economic cycle for the segment.
Qualifying cross-product master netting agreement
means a qualifying master netting agreement
that provides for termination and close-out netting across multiple types of financial transactions or qualifying master netting agreements in the event of a counterparty's default, provided that the underlying financial transactions are OTC derivative contracts, eligible margin loans, or repo-style transactions. In order to treat an agreement as a qualifying cross-product master netting agreement
for purposes of this subpart, a Board-regulated institution
must comply with the requirements of § 217.3(c)
of this part with respect to that agreement.
Qualifying revolving exposure (QRE)
means an exposure (other than a securitization exposure
or equity exposure) to an individual that is managed as part of a segment of exposures with homogeneous risk characteristics, not on an individual-exposure basis, and:
Is revolving (that is, the amount outstanding fluctuates, determined largely by a borrower's decision to borrow and repay up to a pre-established maximum amount, except for an outstanding amount that the borrower is required to pay in full every month);
Has a maximum contractual exposure amount (drawn plus undrawn) of up to $100,000; or
With respect to a product with an outstanding amount that the borrower is required to pay in full every month, the total outstanding amount does not in practice exceed $100,000.
A segment of exposures that contains one or more exposures that fails to meet paragraph (3)(ii) of this definition must be treated as a segment of other retail exposures for the 24 month period following the month in which the total outstanding amount of one or more exposures individually exceeds $100,000.
Total wholesale and retail risk-weighted assets means the sum of:
Risk-weighted assets for wholesale exposures that are not IMM exposures, cleared transactions, or default fund contributions to non-defaulted obligors and segments of non-defaulted retail exposures;
Risk-weighted assets for wholesale exposures to defaulted obligors and segments of defaulted retail exposures;
Risk-weighted assets for non-material portfolios of exposures;
Risk-weighted assets for IMM exposures (as determined in § 217.132(d));
Risk-weighted assets for cleared transactions and risk-weighted assets for default fund contributions (as determined in § 217.133); and
Risk-weighted assets for unsettled transactions (as determined in § 217.136).