Implicit support.
Implicit support. If a national bank or Federal savings association provides support to a securitization in excess of the national bank's or Federal savings association's contractual obligation to provide credit support to the securitization (implicit support):
(1) The national bank or Federal savings association must calculate a risk-weighted asset amount for underlying exposures associated with the securitization as if the exposures had not been securitized and must deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from the securitization; and
(2) The national bank or Federal savings association must disclose publicly:
(1) The national bank or Federal savings association must calculate a risk-weighted asset amount for underlying exposures associated with the securitization as if the exposures had not been securitized and must deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from the securitization; and
(2) The national bank or Federal savings association must disclose publicly:
(i) That it has provided implicit support to the securitization; and
(ii) The regulatory capital impact to the national bank or Federal savings association of providing such implicit support.
(i) Undrawn portion of a servicer cash advance facility.
(1) Notwithstanding any other provision of this subpart, a national bank or Federal savings association that is a servicer under an eligible servicer cash advance facility is not required to hold risk-based capital against potential future cash advance payments that it may be required to provide under the contract governing the facility.
(2) For a national bank or Federal savings association that acts as a servicer, the exposure amount for a servicer cash advance facility that is not an eligible servicer cash advance facility is equal to the amount of all potential future cash advance payments that the national bank or Federal savings association may be contractually required to provide during the subsequent 12 month period under the contract governing the facility.
(j) Interest-only mortgage-backed securities. Regardless of any other provisions in this part, the risk weight for a non-credit-enhancing interest-only mortgage-backed security may not be less than 100 percent.
(k) Small-business loans and leases on personal property transferred with recourse.
(1) Notwithstanding any other provisions of this subpart E, a national bank or Federal savings association that has transferred small-business loans and leases on personal property (small-business obligations) with recourse must include in risk-weighted assets only the contractual amount of retained recourse if all the following conditions are met:
(i) The transaction is a sale under GAAP.
(ii) The national bank or Federal savings association establishes and maintains, pursuant to GAAP, a non-capital reserve sufficient to meet the national bank's or Federal savings association's reasonably estimated liability under the recourse arrangement.
(iii) The loans and leases are to businesses that meet the criteria for a small-business concern established by the Small Business Administration under section 3(a) of the Small Business Act (15 U.S.C. 632 et seq.); and
(iv) The national bank or Federal savings association is well-capitalized, as defined in 12 CFR 6.4. For purposes of determining whether a national bank or Federal savings association is well capitalized for purposes of this paragraph (k), the national bank's or Federal savings association's capital ratios must be calculated without regard to the capital treatment for transfers of small-business obligations with recourse specified in paragraph (k)(1) of this section.
(2) The total outstanding amount of recourse retained by a national bank or Federal savings association on transfers of small-business obligations subject to paragraph (k)(1) of this section cannot exceed 15 percent of the national bank's or Federal savings association's total capital.
(3) If a national bank or Federal savings association ceases to be well capitalized or exceeds the 15 percent capital limitation in paragraph (k)(2) of this section, the preferential capital treatment specified in paragraph (k)(1) of this section will continue to apply to any transfers of small-business obligations with recourse that occurred during the time that the national bank or Federal savings association was well capitalized and did not exceed the capital limit.
(4) The risk-based capital ratios of a national bank or Federal savings association must be calculated without regard to the capital treatment for transfers of small-business obligations with recourse specified in paragraph (k)(1) of this section.
(l) Nth-to-default credit derivatives—(1) Protection provider. A national bank or Federal savings association must determine a risk weight using the supervisory formula approach (SFA) pursuant to § 3.143 or the simplified supervisory formula approach (SSFA) pursuant to § 3.144 for an nth-to-default credit derivative in accordance with this paragraph (l). In the case of credit protection sold, a national bank or Federal savings association must determine its exposure in the nth-to-default credit derivative as the largest notional amount of all the underlying exposures.
(2) For purposes of determining the risk weight for an nth-to-default credit derivative using the SFA or the SSFA, the national bank or Federal savings association must calculate the attachment point and detachment point of its exposure as follows:
(i) The attachment point (parameter A) is the ratio of the sum of the notional amounts of all underlying exposures that are subordinated to the national bank's or Federal savings association's exposure to the total notional amount of all underlying exposures. For purposes of the SSFA, parameter A is expressed as a decimal value between zero and one. For purposes of using the SFA to calculate the risk weight for its exposure in an nth-to-default credit derivative, parameter A must be set equal to the credit enhancement level (L) input to the SFA formula. In the case of a first-to-default credit derivative, there are no underlying exposures that are subordinated to the national bank's or Federal savings association's exposure. In the case of a second-or-subsequent-to-default credit derivative, the smallest (n-1) risk-weighted asset amounts of the underlying exposure(s) are subordinated to the national bank's or Federal savings association's exposure.
(ii) The detachment point (parameter D) equals the sum of parameter A plus the ratio of the notional amount of the national bank's or Federal savings association's exposure in the nth-to-default credit derivative to the total notional amount of all underlying exposures. For purposes of the SSFA, parameter W is expressed as a decimal value between zero and one. For purposes of the SFA, parameter D must be set to equal L plus the thickness of tranche T input to the SFA formula.
(3) A national bank or Federal savings association that does not use the SFA or the SSFA to determine a risk weight for its exposure in an nth-to-default credit derivative must assign a risk weight of 1,250 percent to the exposure.
(4) Protection purchaser—(i) First-to-default credit derivatives. A national bank or Federal savings association that obtains credit protection on a group of underlying exposures through a first-to-default credit derivative that meets the rules of recognition of § 3.134(b) must determine its risk-based capital requirement under this subpart for the underlying exposures as if the national bank or Federal savings association synthetically securitized the underlying exposure with the lowest risk-based capital requirement and had obtained no credit risk mitigant on the other underlying exposures. A national bank or Federal savings association must calculate a risk-based capital requirement for counterparty credit risk according to § 3.132 for a first-to-default credit derivative that does not meet the rules of recognition of § 3.134(b).
(ii) Second-or-subsequent-to-default credit derivatives.
(A) A national bank or Federal savings association that obtains credit protection on a group of underlying exposures through a nth-to-default credit derivative that meets the rules of recognition of § 3.134(b) (other than a first-to-default credit derivative) may recognize the credit risk mitigation benefits of the derivative only if:
(1) The national bank or Federal savings association also has obtained credit protection on the same underlying exposures in the form of first-through-(n-1)-to-default credit derivatives; or
(2) If n-1 of the underlying exposures have already defaulted.
(B) If a national bank or Federal savings association satisfies the requirements of paragraph (l)(3)(ii)(A) of this section, the national bank or Federal savings association must determine its risk-based capital requirement for the underlying exposures as if the bank had only synthetically securitized the underlying exposure with the nth smallest risk-based capital requirement and had obtained no credit risk mitigant on the other underlying exposures.
(C) A national bank or Federal savings association must calculate a risk-based capital requirement for counterparty credit risk according to § 3.132 for a nth-to-default credit derivative that does not meet the rules of recognition of § 3.134(b).
(m) Guarantees and credit derivatives other than nth-to-default credit derivatives—(1) Protection provider. For a guarantee or credit derivative (other than an nth-to-default credit derivative) provided by a national bank or Federal savings association that covers the full amount or a pro rata share of a securitization exposure's principal and interest, the national bank or Federal savings association must risk weight the guarantee or credit derivative as if it holds the portion of the reference exposure covered by the guarantee or credit derivative.
(2) Protection purchaser.
(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).
(ii) If a national bank or Federal savings association cannot, or chooses not to, recognize a purchased credit derivative as a credit risk mitigant under § 3.145, the national bank or Federal savings association must determine the exposure amount of the credit derivative under § 3.132(c).
(A) If the national bank or Federal savings association purchases credit protection from a counterparty that is not a securitization SPE, the national bank or Federal savings association must determine the risk weight for the exposure according § 3.131.
(B) If the national bank or Federal savings association purchases the credit protection from a counterparty that is a securitization SPE, the national bank or Federal savings association must determine the risk weight for the exposure according to this section, including paragraph (a)(5) of this section for a credit derivative that has a first priority claim on the cash flows from the underlying exposures of the securitization SPE (notwithstanding amounts due under interest rate or currency derivative contracts, fees due, or other similar payments.