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Preamble

Table of Contents
          - Introduction 
          - Scope 
          - Qualification 
          - Calculation of Tier 1 Capital and Total Qualifying Capital 
          - Calculation of Risk-Weighted Assets 
          - Operational Risk 
          - Disclosure 

List of Acronyms

Regulatory Flexibility Act Analysis

Paperwork Reduction Act

Plain Language

OCC Executive Order 12866

OTS Executive Order 12866 Determination

OCC Unfunded Mandates Reform Act of 1995 Determination

OTS Unfunded Mandates Reform Act of 1995 Determination

Proposed Regulatory Text

Table of Contents
        - Part I
        - General Provisions
        - Part II
        - Qualifying Capital
        - Part III
        - Qualification
        - Part IV
        - Risk-Weighted Assets for General Credit Risk
        - Part V 
        - Risk-Weighted Assets for Securitization Exposures
        - Part VI
        - Risk-Weighted Assets for Equity Exposures
        - Part VII
        - Risk-Weighted Assets for Operational Risk
        - Part VIII
        - Disclosure

List of Subjects

Authority and Issuance

OCC

Federal Reserve

FDIC

OTS

OCC

Federal Reserve

FDIC

OTS

Billing Codes

(a) Purpose. This appendix establishes:

(1) Minimum qualifying criteria for [bank]s using [bank]-specific internal       risk measurement and management processes for calculating risk-based capital       requirements; 

(2) Methodologies for such [bank]s to calculate their risk-based capital       requirements; and

(3) Public disclosure requirements for such [bank]s.

(b) Applicability. (1) This appendix applies to a [bank] that: 

(i) Has consolidated total assets, as reported on the most recent year-end       Consolidated Report of Condition and Income (Call Report) or Thrift       Financial Report (TFR), equal to $250 billion or more;   

(ii) Has consolidated total on-balance sheet foreign exposure at the most       recent year-end equal to $10 billion or more (where total on-balance       sheet foreign exposure equals total cross-border claims less claims with       head office or guarantor located in another country plus redistributed       guaranteed amounts to the country of head office or guarantor plus local       country claims on local residents plus revaluation gains on foreign exchange       and derivative products, calculated in accordance with the Federal Financial       Institutions Examination Council (FFIEC) 009 Country Exposure       Report);

(iii) Is a subsidiary of a depository institution that uses 12 CFR part 3, Appendix C, 12 CFR part 208, Appendix F, 12 CFR part 325, Appendix D, or 12 CFR part 566, Appendix A, to calculate its risk-based capital requirements;       or

(iv) Is a subsidiary of a bank holding company (as defined in 12 U.S.C. 1841)       that uses 12 CFR part 225, Appendix F, to calculate       its risk-based capital requirements.

(2) Any [bank] may elect to use this appendix to calculate its risk-based       capital requirements. 

(3) A [bank] that is subject to this appendix must use this appendix unless       the [AGENCY] determines in writing that application of this appendix is       not appropriate in light of the [bank]'s asset size, level of complexity,       risk profile, or scope of operations. In making a determination under this       paragraph, the [AGENCY] will apply notice and response procedures in the       same manner and to the same extent as the notice and response procedures       in 12 CFR 3.12 (for national banks), 12 CFR 263.202       (for bank holding companies and state member banks), 12 CFR 325.6(c)       (for state nonmember banks), and 12 CFR 567.3(d) (for savings associations).

(c) Reservation of authority - (1) Additional capital in       the aggregate. The [AGENCY] may require a [bank] to hold an amount of       capital greater than otherwise required under this appendix if the [AGENCY]       determines that the [bank]'s risk-based capital requirement under this appendix       is not commensurate with the [bank]'s credit, market, operational, or other       risks. In making a determination under this paragraph, the [AGENCY] will       apply notice and response procedures in the same manner and to the same       extent as the notice and response procedures in 12 CFR 3.12 (for national banks),       12 CFR 263.202 (for bank holding companies and state member banks),      12 CFR 325.6(c) (for state nonmember banks), and 12 CFR 567.3(d) (for savings associations).

(2) Specific risk-weighted asset amounts. (i) If the [AGENCY] determines       that the risk-weighted asset amount calculated under this appendix by the       [bank] for one or more exposures is not commensurate with the risks associated       with those exposures, the [AGENCY] may require the [bank] to assign a different       risk-weighted asset amount to the exposures, to assign different risk parameters       to the exposures (if the exposures are wholesale or retail exposures),       or to use different model assumptions for the exposures (if the exposures       are equity exposures under the Internal Models Approach (IMA) or securitization       exposures under the Internal Assessment Approach (IAA)), all as specified       by the [AGENCY].

(ii) If the [AGENCY] determines that the risk-weighted asset amount for       operational risk produced by the [bank] under this appendix is not commensurate       with the operational risks of the [bank], the [AGENCY] may require the [bank]       to assign a different risk-weighted asset amount for operational risk,       to change elements of its operational risk analytical framework, including       distributional and dependence assumptions, or to make other changes to       the [bank]'s operational risk management processes, data and assessment systems,       or quantification systems, all as specified by the [AGENCY].

(3) Other supervisory authority. Nothing in this appendix limits the authority       of the [AGENCY] under any other provision of law or regulation to take       supervisory or enforcement action, including action to address unsafe or       unsound practices or conditions, deficient capital levels, or violations       of law.

Advanced internal ratings-based (IRB) systems means a [bank]'s       internal risk rating and segmentation system; risk parameter quantification       system; data management and maintenance system; and control, oversight,       and validation system for credit risk of wholesale and retail exposures.

Advanced systems means a [bank]'s advanced IRB systems, operational       risk management processes, operational risk data and assessment systems,       operational risk quantification systems, and, to the extent the [bank] uses       the following systems, the counterparty credit risk model, double default       excessive correlation detection process, IMA for equity exposures, and       IAA for securitization exposures to ABCP programs.

Affiliate with respect to a company means any company that       controls, is controlled by, or is under common control with, the company.       For purposes of this definition, a person or company controls a company       if it:

(1) Owns, controls, or holds with power to vote 25 percent or more       of a class of voting securities of the company; or

(2) Consolidates the company for financial reporting purposes. 

Applicable external rating means, with respect to an exposure,       the lowest external rating assigned to the exposure by any NRSRO.

Asset-backed commercial paper (ABCP) program means a program that       primarily issues commercial paper that:

(1) Has an external rating; and

(2) Is backed by underlying exposures held in a bankruptcy-remote SPE.

Asset-backed commercial paper (ABCP) program sponsor means       a [bank] that:

(1) Establishes an ABCP program;

(2) Approves the sellers permitted to participate in an ABCP program;

(3) Approves the exposures to be purchased by an ABCP program; or

(4) Administers the ABCP program by monitoring the underlying exposures,       underwriting or otherwise arranging for the placement of debt or other       obligations issued by the program, compiling monthly reports, or ensuring       compliance with the program documents and with the program's credit and       investment policy. 

Backtesting means the comparison of a [bank]'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.

Benchmarking means the comparison of a [bank]'s internal estimates       with relevant internal and external data sources or estimation techniques.

Business environment and internal control factors means the       indicators of a [bank]'s operational risk profile that reflect a current       and forward-looking assessment of the [bank]'s underlying business risk factors       and internal control environment.

Carrying value means, with respect to an asset, the value       of the asset on the balance sheet of the [bank], determined in accordance       with GAAP.

Clean-up call means a contractual provision that permits       a servicer to call securitization exposures before their stated maturity       or call date. See also eligible clean-up call.

Commodity derivative contract means a commodity-linked swap,       purchased commodity-linked option, forward commodity-linked contract, or       any other instrument linked to commodities that gives rise to similar counterparty       credit risks.

Company means a corporation, partnership, limited liability       company, depository institution, business trust, special purpose entity,       association, or similar organization.

Credit derivative means a financial contract executed under       standard industry credit derivative documentation that allows one party       (the protection purchaser) to transfer the credit risk of one or more exposures       (reference exposure) to another party (the protection provider). See also       eligible credit derivative.

Credit-enhancing interest-only strip (CEIO) means an on-balance       sheet asset that, in form or in substance:

(1) Represents a contractual right to receive some or all of the interest       and no more than a minimal amount of principal due on the underlying exposures       of a securitization; and

(2) Exposes the holder to credit risk directly or indirectly associated       with the underlying exposures that exceeds a pro rata share of the holder's       claim on the underlying exposures, whether through subordination provisions       or other credit-enhancement techniques.

Credit-enhancing representations and warranties means representations       and warranties that are made or assumed in connection with a transfer of       underlying exposures (including loan servicing assets) and that obligate       a [bank] to protect another party from losses arising from the credit risk       of the underlying exposures. Credit-enhancing representations and warranties       include provisions to protect a party from losses resulting from the default       or nonperformance of the obligors of the underlying exposures or from an       insufficiency in the value of the collateral backing the underlying exposures.       Credit-enhancing representations and warranties do not include:

(1) Early default clauses and similar warranties that permit the return       of, or premium refund clauses that cover, first-lien residential mortgage       exposures for a period not to exceed 120 days from the date of transfer,       provided that the date of transfer is within one year of origination of       the residential mortgage exposure;

(2) Premium refund clauses that cover underlying exposures guaranteed,       in whole or in part, by the U.S. government, a U.S. government agency,       or a U.S. government sponsored enterprise, provided that the clauses are       for a period not to exceed 120 days from the date of transfer; or

(3) Warranties that permit the return of underlying exposures in instances       of misrepresentation, fraud, or incomplete documentation.

Credit risk mitigant means collateral, a credit derivative, or a       guarantee.

Credit-risk-weighted assets means 1.06 multiplied by the sum       of:

(1) Total wholesale and retail risk-weighted assets;

(2) Risk-weighted assets for securitization exposures; and 

(3) Risk-weighted assets for equity exposures.

Current exposure means, with respect to a netting set, the       larger of zero or the market value of a transaction or portfolio of transactions       within the netting set that would be lost upon default of the counterparty,       assuming no recovery on the value of the transactions. Current exposure       is also called replacement cost.

Default - (1) Retail. (i) A retail exposure       of a [bank] is in default if: 

(A) The exposure is 180 days past due, in the case of a residential mortgage       exposure or revolving exposure; 

(B) The exposure is 120 days past due, in the case of all other retail       exposures; or

(C) The [bank] has taken a full or partial charge-off or write-down of principal       on the exposure for credit-related reasons. 

(ii) A retail exposure in default remains in default until the [bank] has       reasonable assurance of repayment and performance for all contractual principal       and interest payments on the exposure. 

(2) Wholesale. (i) A [bank]'s obligor is in default if, for       any wholesale exposure of the [bank] to the obligor, the [bank] has:

(A) Placed the exposure on non-accrual status consistent with the Call       Report Instructions or the TFR and the TFR Instruction Manual;

(B) Taken a full or partial charge-off or write-down on the exposure due       to the distressed financial condition of the obligor; or

(C) Incurred a credit-related loss of 5 percent or more of the exposure's       initial carrying value in connection with the sale of the exposure or the       transfer of the exposure to the held-for-sale, available-for-sale, trading       account, or other reporting category.

(ii) An obligor in default remains in default until the [bank] has reasonable       assurance of repayment and performance for all contractual principal and       interest payments on all exposures of the [bank] to the obligor (other than       exposures that have been fully written-down or charged-off).

Dependence means a measure of the association among operational       losses across and within business lines and operational loss event types.

Depository institution is defined in section 3 of the Federal       Deposit Insurance Act (12 U.S.C. 1813).

Derivative contract means a financial contract whose value is derived       from the values of one or more underlying assets, reference rates, or indices       of asset values or reference rates. Derivative contracts include interest       rate derivative contracts, exchange rate derivative contracts, equity derivative       contracts, commodity derivative contracts, credit derivatives, and any       other instrument that poses similar counterparty credit risks. Derivative       contracts also include unsettled securities, commodities, and foreign exchange       transactions with a contractual settlement or delivery lag that is longer       than the lesser of the market standard for the particular instrument or       5 business days.

Early amortization provision means a provision in the documentation       governing a securitization that, when triggered, causes investors in the       securitization exposures to be repaid before the original stated maturity       of the securitization exposures, unless the provision is triggered solely       by events not directly related to the performance of the underlying exposures       or the originating [bank] (such as material changes in tax laws or regulations).       An early amortization provision is a controlled early amortization provision       if it meets all the following conditions:

(1) The originating [bank] has appropriate policies and procedures to ensure       that it has sufficient capital and liquidity available in the event of       an early amortization;

(2) Throughout the duration of the securitization (including the early       amortization period), there is the same pro rata sharing of interest, principal,       expenses, losses, fees, recoveries, and other cash flows from the underlying       exposures based on the originating [bank]'s and the investors' relative shares       of the underlying exposures outstanding measured on a consistent monthly       basis;

(3) The amortization period is sufficient for at least 90 percent       of the total underlying exposures outstanding at the beginning of the early       amortization period to be repaid or recognized as in default; and

(4) The schedule for repayment of investor principal is not more rapid       than would be allowed by straight-line amortization over an 18-month period.

Economic downturn conditions means, with respect to an exposure,       those conditions in which the aggregate default rates for the exposure's       wholesale or retail exposure subcategory (or subdivision of such subcategory       selected by the [bank]) in the exposure's national jurisdiction (or subdivision       of such jurisdiction selected by the [bank]) are significantly higher than       average.

Effective maturity (M) of a wholesale exposure means:

(1) For wholesale exposures other than repo-style transactions, eligible       margin loans, and OTC derivative contracts subject to a qualifying master       netting agreement:

(i) 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

(ii) The nominal remaining maturity (measured in years, whole or fractional)       of the exposure.

(2) For repo-style transactions, eligible margin loans, and OTC derivative       contracts subject to a qualifying master netting agreement, 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.

Effective notional amount means, for an eligible guarantee or eligible       credit derivative, the lesser of the contractual notional amount of the       credit risk mitigant and the EAD of the hedged exposure, multiplied by       the percentage coverage of the credit risk mitigant. For example, the effective       notional amount of an eligible guarantee that covers, on a pro rata       basis, 40 percent of any losses on a $100 bond would be $40.

Eligible clean-up call means a clean-up call that:

(1) Is exercisable solely at the discretion of the servicer;

(2) Is not structured to avoid allocating losses to securitization exposures       held by investors or otherwise structured to provide credit enhancement       to the securitization; and

(3) (i) For a traditional securitization, is only exercisable when 10 percent       or less of the principal amount of the underlying exposures or securitization       exposures (determined as of the inception of the securitization) is outstanding;       or

(ii) For a synthetic securitization, is only exercisable when 10 percent       or less of the principal amount of the reference portfolio of underlying       exposures (determined as of the inception of the securitization) is outstanding.

Eligible credit derivative means a credit derivative in the       form of a credit default swap, nth-to-default swap, or total return swap       provided that:

(1) The contract meets the requirements of an eligible guarantee and has       been confirmed by the protection purchaser and the protection provider;

(2) Any assignment of the contract has been confirmed by all relevant parties;

(3) If the credit derivative is a credit default swap or nth-to-default       swap, the contract includes the following credit events: 

(i) Failure to pay any amount due under the terms of the reference exposure       (with a grace period that is closely in line with the grace period of the       reference exposure); and

(ii) Bankruptcy, insolvency, or inability of the obligor on the reference       exposure to pay its debts, or its failure or admission in writing of its       inability generally to pay its debts as they become due, and similar events;

(4) The terms and conditions dictating the manner in which the contract       is to be settled are incorporated into the contract;

(5) If the contract allows for cash settlement, the contract incorporates       a robust valuation process to estimate loss reliably and specifies a reasonable       period for obtaining post-credit event valuations of the reference exposure;

(6) If the contract requires the protection purchaser to transfer an exposure       to the protection provider at settlement, the terms of the exposure provide       that any required consent to transfer may not be unreasonably withheld;

(7) If the credit derivative is a credit default swap or nth-to-default       swap, the contract clearly identifies the parties responsible for determining       whether a credit event has occurred, specifies that this determination       is not the sole responsibility of the protection provider, and gives the       protection purchaser the right to notify the protection provider of the       occurrence of a credit event; and

(8) If the credit derivative is a total return swap and the [bank] records       net payments received on the swap as net income, the [bank] records offsetting       deterioration in the value of the hedged exposure (either through reductions       in fair value or by an addition to reserves). 

Eligible credit reserves means all general allowances that have       been established through a charge against earnings to absorb credit losses       associated with on- or off-balance sheet wholesale and retail exposures,       including the allowance for loan and lease losses (ALLL) associated       with such exposures but excluding allocated transfer risk reserves established       pursuant to 12 U.S.C. 3904 and other specific reserves created       against recognized losses.

Eligible double default guarantor, with respect to a guarantee       or credit derivative obtained by a [bank], means:

(1) U.S.-based entities. A depository institution, a bank holding       company (as defined in section 2 of the Bank Holding Company Act (12 U.S.C. 1841)),       a savings and loan holding company (as defined in 12 U.S.C. 1467a)       provided all or substantially all of the holding company's activities are       permissible for a financial holding company under 12 U.S.C. 1843(k),       a securities broker or dealer registered (under the Securities Exchange       Act of 1934) with the SEC, an insurance company in the business of       providing credit protection (such as a monoline bond insurer or re-insurer)       that is subject to supervision by a State insurance regulator, if:

(i) At the time the guarantor issued the guarantee or credit derivative,       the [bank] assigned a PD to the guarantor's rating grade that was equal to       or lower than the PD associated with a long-term external rating in the       third-highest investment grade rating category; and

(ii) The [bank] currently assigns a PD to the guarantor's rating grade that       is equal to or lower than the PD associated with a long-term external rating       in the lowest investment grade rating category; or

(2) Non-U.S.-based entities. A foreign bank (as defined in section 211.2       of the Federal Reserve Board's Regulation K (12 CFR 211.2)),       a non-U.S. securities firm, or a non-U.S. based insurance company in the       business of providing credit protection, if:

(i) The [bank] demonstrates that the guarantor is subject to consolidated       supervision and regulation comparable to that imposed on U.S. depository institutions, securities       broker-dealers, or insurance companies (as the case may be) or has issued       and outstanding an unsecured long-term debt security without credit enhancement       that has a long-term applicable external rating in one of the three highest       investment grade rating categories;

(ii) At the time the guarantor issued the guarantee or credit derivative,       the [bank] assigned a PD to the guarantor's rating grade that was equal to       or lower than the PD associated with a long-term external rating in the       third-highest investment grade rating category; and

(iii) The [bank] currently assigns a PD to the guarantor's rating grade that       is equal to or lower than the PD associated with a long-term external rating       in the lowest investment grade rating category. 

Eligible guarantee means a guarantee that:

(1) Is written and unconditional;

(2) Covers all or a pro rata portion of all contractual payments of the       obligor on the reference exposure;

(3) Gives the beneficiary a direct claim against the protection provider;

(4) Is non-cancelable by the protection provider for reasons other than       the breach of the contract by the beneficiary;

(5) Is legally enforceable against the protection provider in a jurisdiction       where the protection provider has sufficient assets against which a judgment       may be attached and enforced; and

(6) Requires the protection provider to make payment to the beneficiary       on the occurrence of a default (as defined in the guarantee) of the obligor       on the reference exposure without first requiring the beneficiary to demand       payment from the obligor.

Eligible margin loan means an extension of credit where:

(1) The extension of credit is collateralized exclusively by debt or equity       securities that are liquid and readily marketable;

(2) The collateral is marked to market daily, and the transaction is subject       to daily margin maintenance requirements;

(3) The extension of credit is conducted under an agreement that provides       the [bank] the right to accelerate and terminate the extension of credit       and to liquidate or set off collateral promptly upon an event of default       (including upon an event of bankruptcy, insolvency, or similar proceeding)       of the counterparty, provided that, in any such case, any exercise of rights       under the agreement will not be stayed or avoided under applicable law       in the relevant jurisdictions;2       and

(4) The [bank] has conducted and documented sufficient legal review to conclude       with a well-founded basis that the agreement meets the requirements of       paragraph (3) of this definition and is legal, valid, binding, and       enforceable under applicable law in the relevant jurisdictions.

Eligible operational risk offsets means amounts, not to exceed       expected operational loss, that:

(1) Are generated by internal business practices to absorb highly predictable       and reasonably stable operational losses, including reserves calculated       consistent with GAAP; and 

(2) Are available to cover expected operational losses with a high degree       of certainty over a one-year horizon. 

Eligible purchased wholesale receivable means a purchased       wholesale receivable that:

(1) The [bank] purchased from an unaffiliated seller and did not directly       or indirectly originate;

(2) Was generated on an arm's-length basis between the seller and the obligor;3

(3) Provides the [bank] with a claim on all proceeds from the receivable       or a pro-rata interest in the proceeds from the receivable; and

(4) Has an M of less than one year.

Eligible securitization guarantor means:

(1) A sovereign entity, the Bank for International Settlements, the International       Monetary Fund, the European Central Bank, the European Commission, a Federal       Home Loan Bank, Federal Agricultural Mortgage Corporation (Farmer Mac),       a multi-lateral development bank, a depository institution, a bank holding       company (as defined in section 2 of the Bank Holding Company Act (12 U.S.C. 1841)),       a savings and loan holding company (as defined in 12 U.S.C. 1467a)       provided all or substantially all of the holding company's activities are       permissible for a financial holding company under 12 U.S.C. 1843(k),       a foreign bank (as defined in section 211.2 of the Federal Reserve Board's       Regulation K (12 CFR 211.2)), or a securities firm;

(2) Any other entity (other than an SPE) that has issued and outstanding       an unsecured long-term debt security without credit enhancement that has       a long-term applicable external rating in one of the three highest investment       grade rating categories; or

(3) Any other entity (other than an SPE) that has a PD assigned by the       [bank] that is lower than or equal to the PD associated with a long-term       external rating in the third highest investment grade rating category.

Eligible servicer cash advance facility means a servicer       cash advance facility in which:

(1) The servicer is entitled to full reimbursement of advances, except       that a servicer may be obligated to make non-reimbursable advances for       a particular underlying exposure if any such advance is contractually limited       to an insignificant amount of the outstanding principal balance of that       exposure;

(2) The servicer's right to reimbursement is senior in right of payment       to all other claims on the cash flows from the underlying exposures of       the securitization; and

(3) The servicer has no legal obligation to, and does not, make advances       to the securitization if the servicer concludes the advances are unlikely       to be repaid.

Equity derivative contract means an equity-linked swap, purchased       equity-linked option, forward equity-linked contract, or any other instrument       linked to equities that gives rise to similar counterparty credit risks.

Equity exposure means:

(1) A security or instrument (whether voting or non-voting) that represents       a direct or indirect ownership interest in, and a residual claim on, the       assets and income of a company, unless:

(i) The issuing company is consolidated with the [bank] under GAAP; 

(ii) The [bank] is required to deduct the ownership interest from tier 1       or tier 2 capital under this appendix;

(iii) The ownership interest is redeemable;

(iv) The ownership interest incorporates a payment or other similar obligation       on the part of the issuing company (such as an obligation to pay periodic       interest); or

(v) The ownership interest is a securitization exposure; 

(2) A security or instrument that is mandatorily convertible into a security       or instrument described in paragraph (1) of this definition;

(3) An option or warrant that is exercisable for a security or instrument       described in paragraph (1) of this definition; or

(4) Any other security or instrument (other than a securitization exposure)       to the extent the return on the security or instrument is based on the       performance of a security or instrument described in paragraph (1) of this       definition.

Excess spread for a period means:

(1) Gross finance charge collections and other income received by a securitization       SPE (including market interchange fees) over a period minus interest paid       to the holders of the securitization exposures, servicing fees, charge-offs,       and other senior trust or similar expenses of the SPE over the period;       divided by

(2) The principal balance of the underlying exposures at the end of the       period.

Exchange rate derivative contract means a cross-currency       interest rate swap, forward foreign-exchange contract, currency option       purchased, or any other instrument linked to exchange rates that gives       rise to similar counterparty credit risks.

Excluded mortgage exposure means:

(1) Any one-to-four family residential pre-sold construction loan or multifamily       residential loan that would receive a 50 percent risk weight under       section 618(a)(1) or (b)(1) of the Resolution Trust Corporation Refinancing,       Restructuring, and Improvement Act of 1991 (RTCRRI Act) and under       12 CFR part 3, Appendix A, section 3(a)(3)(iii) (for national banks),       12 CFR part 208, Appendix A, section III.C.3. (for state member banks),       12 CFR part 225, Appendix A, section III.C.3. (for bank holding companies),       12 CFR part 325, Appendix A, section II.C.a. (for state nonmember banks),       or 12 CFR 567.6(a)(1)(iii) and (iv) (for savings associations);      and

(2) Any one-to-four family residential pre-sold construction loan for a       residence for which the purchase contract is cancelled that would receive       a 100 percent risk weight under section 618(a)(2) of the RTCRRI       Act and under 12 CFR part 3, Appendix A, section 3(a)(3)(iii) (for national banks), 12 CFR part 208, Appendix A, section III.C.3. (for state member banks), 12 CFR part 225, Appendix A, section III.C.3. (for bank holding companies), 12 CFR part 325, Appendix A, section II.C.a. (for state nonmember banks), or 12 CFR 567.6(a)(1)(iii) and (iv) (for savings associations).

Expected credit loss (ECL) means, for a wholesale exposure to a       non-defaulted obligor or segment of non-defaulted retail exposures, the       product of PD times ELGD times EAD for the exposure or segment. ECL for       a wholesale exposure to a defaulted obligor or segment of defaulted retail       exposures is equal to the [bank]'s impairment estimate for allowance purposes       for the exposure or segment. Total ECL is the sum of expected credit losses       for all wholesale and retail exposures other than exposures for which the       [bank] has applied the double default treatment in section 34.

Expected exposure (EE) means the expected value of the probability       distribution of credit risk exposures to a counterparty at any specified       future date before the maturity date of the longest term transaction in       the netting set.

Expected loss given default (ELGD) means:

(1) For a wholesale exposure, the [bank]'s empirically based best estimate       of the default-weighted average economic loss, per dollar of EAD, the [bank]       expects to incur in the event that the obligor of the exposure (or a typical       obligor in the loss severity grade assigned by the [bank] to the exposure)       defaults within a one-year horizon over a mix of economic conditions, including       economic downturn conditions.

(2) For a segment of retail exposures, the [bank]'s empirically based best       estimate of the default-weighted average economic loss, per dollar of EAD,       the [bank] expects to incur on exposures in the segment that default within       a one-year horizon over a mix of economic conditions (including economic       downturn conditions).

(3) 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, 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.

Expected operational loss (EOL) means the expected value       of the distribution of potential aggregate operational losses, as generated       by the [bank]'s operational risk quantification system using a one-year horizon.

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 the minimum capital requirement,       the average is taken over a one-year horizon.

Exposure at default (EAD).

(1) For the on-balance sheet component of a wholesale or retail exposure       (other than an OTC derivative contract, repo-style transaction, or eligible       margin loan), EAD means:

(i) If the exposure is held-to-maturity or for trading, the [bank]'s carrying       value (including net accrued but unpaid interest and fees) for the exposure       less any allocated transfer risk reserve for the exposure; or

(ii) If the exposure is available-for-sale, the [bank]'s carrying value (including       net accrued but unpaid interest and fees) for the exposure less any allocated       transfer risk reserve for the exposure, less any unrealized gains on the       exposure, and plus any unrealized losses on the exposure.

(2) For the off-balance sheet component of a wholesale or retail exposure       (other than an OTC derivative contract, repo-style transaction, or eligible       margin loan) in the form of a loan commitment or line of credit, EAD means       the [bank]'s best estimate of net additions to the outstanding amount owed       the [bank], including estimated future additional draws of principal and       accrued but unpaid interest and fees, that are likely to occur over the       remaining life of the exposure assuming the exposure were to go into default.       This estimate of net additions must reflect what would be expected during       economic downturn conditions.

(3) For the off-balance sheet component of a wholesale or retail exposure       (other than an OTC derivative contract, repo-style transaction, or eligible       margin loan) in the form of anything other than a loan commitment or line       of credit, EAD means the notional amount of the exposure.

(4) EAD for a segment of retail exposures is the sum of the EADs for each       individual exposure in the segment.

(5) EAD for OTC derivative contracts, repo-style transactions, and eligible       margin loans is calculated as described in section 32.

(6) For wholesale or retail exposures in which only the drawn balance has       been securitized, the [bank] must reflect its share of the exposures' undrawn       balances in EAD. Undrawn balances of exposures for which the drawn balances       have been securitized must be allocated between the seller's and investors'       interests on a pro rata basis, based on the proportions of the seller's       and investors' shares of the securitized drawn balances.

Exposure category means any of the wholesale, retail, securitization,       or equity exposure categories.

External operational loss event data means, with respect       to a [bank], gross operational loss amounts, dates, recoveries, and relevant       causal information for operational loss events occurring at organizations       other than the [bank].

External rating means a credit rating that is assigned by       an NRSRO to an exposure, provided:

(1) The credit rating fully reflects the entire amount of credit risk with       regard to all payments owed to the holder of the exposure. If a holder       is owed principal and interest on an exposure, the credit rating must fully       reflect the credit risk associated with timely repayment of principal and       interest. If a holder is owed only principal on an exposure, the credit       rating must fully reflect only the credit risk associated with timely repayment       of principal; and

(2) The credit rating is published in an accessible form and is or will       be included in the transition matrices made publicly available by the NRSRO       that summarize the historical performance of positions rated by the NRSRO.

Financial collateral means collateral:

(1) In the form of:

(i) Cash on deposit with the [bank] (including cash held for the [bank] by       a third-party custodian or trustee); 

(ii) Gold bullion;

(iii) Long-term debt securities that have an applicable external rating       of one category below investment grade or higher; 

(iv) Short-term debt instruments that have an applicable external rating       of at least investment grade;

(v) Equity securities that are publicly traded; 

(vi) Convertible bonds that are publicly traded; or

(vii) Money market mutual fund shares and other mutual fund shares if a       price for the shares is publicly quoted daily; and

(2) In which the [bank] has a perfected, first priority security interest       or the legal equivalent thereof.

GAAP means U.S. generally accepted accounting principles.

Gain-on-sale means an increase in the equity capital (as       reported on Schedule RC of the Call Report, schedule HC of the FR Y-9C Report, 	or Schedule SC of the Thrift       Financial Report) of a [bank] that results from a securitization (other than       an increase in equity capital that results from the [bank]'s receipt of cash       in connection with the securitization).

Guarantee means a financial guarantee, letter of credit, insurance,       or other similar financial instrument (other than a credit derivative)       that allows one party (beneficiary) to transfer the credit risk of one       or more specific exposures (reference exposure) to another party (protection       provider). See also eligible guarantee.

High volatility commercial real estate (HVCRE) exposure means       a credit facility that finances or has financed the acquisition, development,       or construction (ADC) of real property, unless the facility finances:

(1) One- to four-family residential properties; or 

(2) Commercial real estate projects in which:

(i) The loan-to-value ratio is less than or equal to the applicable maximum       supervisory loan-to-value ratio in the [AGENCY]'s real estate lending standards       at 12 CFR part 34, Subpart D (OCC); 12 CFR part 208,       Appendix C (Board); 12 CFR part 365, Subpart D (FDIC);       and 12 CFR 560.100-560.101 (OTS);

(ii) The borrower has contributed capital to the project in the form of       cash or unencumbered readily marketable assets (or has paid development       expenses out-of-pocket) of at least 15 percent of the real estate's       appraised "as completed" value; and

(iii) The borrower contributed the amount of capital required by paragraph (2)(ii)       of this definition before the [bank] advances funds under the credit facility,       and the capital contributed by the borrower, or internally generated by       the project, is contractually required to remain in the project throughout       the life4       of the project.

Inferred rating. A securitization exposure has an inferred       rating equal to the external rating referenced in paragraph (2)(i)       of this definition if:

(1) The securitization exposure does not have an external rating; and

(2) Another securitization exposure issued by the same issuer and secured       by the same underlying exposures:

(i) Has an external rating;

(ii) Is subordinated in all respects to the unrated securitization exposure;

(iii) Does not benefit from any credit enhancement that is not available       to the unrated securitization exposure; and

(iv) Has an effective remaining maturity that is equal to or longer than       that of the unrated securitization exposure.

Interest rate derivative contract means a single-currency interest       rate swap, basis swap, forward rate agreement, purchased interest rate       option, when-issued securities, or any other instrument linked to interest       rates that gives rise to similar counterparty credit risks.

Internal operational loss event data means, with respect to a [bank],       gross operational loss amounts, dates, recoveries, and relevant causal       information for operational loss events occurring at the [bank].

Investing [bank] means, with respect to a securitization, a [bank] that       assumes the credit risk of a securitization exposure (other than an originating       [bank] of the securitization). In the typical synthetic securitization, the       investing [bank] sells credit protection on a pool of underlying exposures       to the originating [bank].

Investment fund means a company:

(1) All or substantially all of the assets of which are financial assets;       and

(2) That has no material liabilities. 

Investors' interest EAD means, with respect to a securitization,       the EAD of the underlying exposures multiplied by the ratio of:

(1) The total amount of securitization exposures issued by the SPE to investors;       divided by

(2) The outstanding principal amount of underlying exposures.

Loss given default (LGD) means:

(1) For a wholesale exposure:

(i) If the [bank] has received prior written approval from [AGENCY] to use       internal estimates of LGD for the exposure's wholesale exposure subcategory,       the greater of:

(A) The [bank]'s ELGD for the exposure (or for the typical exposure in the       loss severity grade assigned by the [bank] to the exposure); or

(B) The [bank]'s empirically based best estimate of the economic loss, per dollar of EAD, the [bank] would expect to incur if the obligor (or a typical       obligor in the loss severity grade assigned by the [bank] to the exposure)       were to default within a one-year horizon during economic downturn conditions.

(ii) If the [bank] has not received such prior approval, 

(A) For an exposure that is not a repo-style transaction, eligible margin       loan, or OTC derivative contract, the sum of:

(1) 0.08; and

(2) 0.92 multiplied by the [bank]'s ELGD for the exposure (or for       the typical exposure in the loss severity grade assigned by the [bank] to       the exposure); or

(B) For an exposure that is a repo-style transaction, eligible margin loan,       or OTC derivative contract, the [bank]'s ELGD for the exposure (or for the       typical exposure in the loss severity grade assigned by the [bank] to the       exposure).

(2) For a segment of retail exposures:

(i) If the [bank] has received prior written approval from [AGENCY] to use       internal estimates of LGD for the segment's retail exposure subcategory,       the greater of:

(A) The [bank]'s ELGD for the segment of exposures; or

(B) The [bank]'s empirically based best estimate of the economic loss, per dollar of EAD, the [bank] would expect to incur on exposures in the segment       that default within a one-year horizon during economic downturn conditions.

(ii) If the [bank] has not received such prior approval, 

(A) For a segment of exposures that are not eligible margin loans, the       sum of:

(1) 0.08; and

(2) 0.92 multiplied by the [bank]'s ELGD for the segment of exposures;       or

(B) For a segment of exposures that are eligible margin loans, the [bank]'s       ELGD for the segment of exposures.

(3) In approving a [bank]'s use of internal estimates of LGD for a wholesale       or retail exposure subcategory, [AGENCY] will consider whether:

(A) The [bank]'s internal estimates of LGD are reliable and sufficiently       reflective of economic downturn conditions; and

(B) The [bank] has rigorous and well-documented policies and procedures for       identifying economic downturn conditions for the exposure subcategory,       identifying material adverse correlations between the relevant drivers       of default rates and loss rates given default, and incorporating identified       correlations into internal LGD estimates.

(4) 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, 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.

Main index means the Standard & Poor's 500 Index, the       FTSE All-World Index, and any other index for which the [bank] can demonstrate       to the satisfaction of [AGENCY] that the equities represented in the index       have comparable liquidity, depth of market, and size of bid-ask spreads       as equities in the Standard & Poor's 500 Index and FTSE All-World Index.

Multi-lateral development bank means any multi-lateral lending       institution or regional development bank in which the U.S. government is       a shareholder or contributing member.

Nationally recognized statistical rating organization (NRSRO) means       an entity recognized by the Division of Market Regulation (or any successor       division) of the SEC as a nationally recognized statistical rating organization       for various purposes, including the SEC's net capital requirements for       securities broker-dealers.

Netting set means a group of transactions with a single counterparty       that are subject to a qualifying master netting agreement or qualifying       cross-product master netting agreement. Each transaction that is not subject       to such a master netting agreement is its own netting set.

Nth-to-default credit derivative means a credit derivative that       provides credit protection only for the nth-defaulting reference exposure       in a group of reference exposures.

Operational loss 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 internal fraud; external fraud;5       employment practices and workplace safety; clients, products, and business       practices; damage to physical assets; business disruption and system failures;       or execution, delivery, and process management.

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).

Operational risk exposure means the 99.9th percentile       of the distribution of potential aggregate operational losses, as generated       by the [bank]'s operational risk quantification system over a one-year horizon       (and not incorporating eligible operational risk offsets or qualifying       operational risk mitigants). 

Originating [bank], with respect to a securitization, means a [bank]       that:

(1) Directly or indirectly originated or securitized the underlying exposures       included in the securitization; or

(2) Serves as an ABCP program sponsor to the securitization.

Other retail exposure means an exposure (other than a securitization       exposure, an equity exposure, a residential mortgage exposure, an excluded       mortgage exposure, a qualifying revolving exposure, or the residual value       portion of a lease exposure) that is managed as part of a segment of exposures       with homogeneous risk characteristics, not on an individual-exposure basis,       and is either:

(1) An exposure to an individual for non-business purposes; or

(2) An exposure to an individual or company for business purposes if the       [bank]'s consolidated business credit exposure to the individual or company       is $1 million or less.

Over-the-counter (OTC) derivative contract means a derivative       contract that is not traded on an exchange that requires the daily receipt       and payment of cash-variation margin.

Parallel run period means a period of at least four consecutive       quarters after adoption of the [bank]'s implementation plan and before the       [bank]'s first floor period during which the [bank] complies with all the qualification       requirements in section 22 to the satisfaction of the [AGENCY].

Probability of default (PD) means:

(1) For a wholesale exposure to a non-defaulted obligor, the [bank]'s empirically       based best estimate of the long-run average of one-year default rates for       the rating grade assigned by the [bank] to the obligor, capturing the average       default experience for obligors in a 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. 

(2) For a segment of non-defaulted retail exposures for which seasoning       effects are not material, or for a segment of non-defaulted retail exposures       in a retail exposure subcategory for which seasoning effects are not material,       the [bank]'s empirically based best estimate of the long-run average of one-year       default rates 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. 

(3) For any other segment of non-defaulted retail exposures, the [bank]'s       empirically based best estimate of the annualized cumulative default rate       over the expected remaining life of 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 performance over the economic       cycle for the segment.

(4) For a wholesale exposure to a defaulted obligor or segment of defaulted       retail exposures, 100 percent.

Protection amount (P) means, with respect to an exposure       hedged by an eligible guarantee or eligible credit derivative, the effective       notional amount of the guarantee or credit derivative as reduced to reflect       any currency mismatch, maturity mismatch, or lack of restructuring coverage       (as provided in section 33). 

Publicly traded means traded on:

(1) Any exchange registered with the SEC as a national securities exchange       under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); or

(2) Any non-U.S.-based securities exchange that:

(i) Is registered with, or approved by, a national securities regulatory       authority; and

(ii) Provides a liquid, two-way market for the instrument in question,       meaning that there are enough independent bona fide offers to buy and sell       so that a sales price reasonably related to the last sales price or current       bona fide competitive bid and offer quotations can be determined promptly       and a trade can be settled at such a price within five business days.

Qualifying central counterparty means a counterparty (for       example, a clearing house) that: 

(1) Facilitates trades between counterparties in one or more financial       markets by either guaranteeing trades or novating contracts;

(2) Requires all participants in its arrangements to be fully collateralized       on a daily basis; and

(3) The [bank] demonstrates to the satisfaction of [AGENCY] is in sound financial       condition and is subject to effective oversight by a national supervisory       authority.

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:    

(1) The underlying financial transactions are OTC derivative contracts,       eligible margin loans, or repo-style transactions; and

(2) The [bank] obtains a written legal opinion verifying the validity and       enforceability of the agreement under applicable law of the relevant jurisdictions       if the counterparty fails to perform upon an event of default, including       upon an event of bankruptcy, insolvency, or similar proceeding.

Qualifying master netting agreement means any written, legally       enforceable bilateral agreement, provided that:

(1) The agreement creates a single legal obligation for all individual       transactions covered by the agreement upon an event of default, including       bankruptcy, insolvency, or similar proceeding, of the counterparty;

(2) The agreement provides the [bank] the right to accelerate, terminate,       and close-out on a net basis all transactions under the agreement and to       liquidate or set off collateral promptly upon an event of default, including       upon an event of bankruptcy, insolvency, or similar proceeding, of the       counterparty, provided that, in any such case, any exercise of rights under       the agreement will not be stayed or avoided under applicable law in the       relevant jurisdictions;

(3) The [bank] has conducted and documented sufficient legal review to conclude       with a well-founded basis that:

(i) The agreement meets the requirements of paragraph (2) of this       definition; and

(ii) In the event of a legal challenge (including one resulting from default       or from bankruptcy, insolvency, or similar proceeding) the relevant court       and administrative authorities would find the agreement to be legal, valid,       binding, and enforceable under the law of the relevant jurisdictions;

(4) The [bank] establishes and maintains procedures to monitor possible changes       in relevant law and to ensure that the agreement continues to satisfy the       requirements of this definition; and

(5) The agreement does not contain a walkaway clause (that is, a provision       that permits a non-defaulting counterparty to make a lower payment than       it would make otherwise under the agreement, or no payment at all, to a       defaulter or the estate of a defaulter, even if the defaulter or the estate       of the defaulter is a net creditor under the 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:

(1) Is revolving (that is, the amount outstanding fluctuates, determined       largely by the borrower's decision to borrow and repay, up to a pre-established       maximum amount);

(2) Is unsecured and unconditionally cancelable by the [bank] to the fullest       extent permitted by Federal law; and

(3) Has a maximum exposure amount (drawn plus undrawn) of up to $100,000.

Repo-style transaction means a repurchase or reverse repurchase       transaction, or a securities borrowing or securities lending transaction,       including a transaction in which the [bank] acts as agent for a customer       and indemnifies the customer against loss, provided that:

(1) The transaction is based solely on liquid and readily marketable securities       or cash;

(2) The transaction is marked-to-market daily and subject to daily margin       maintenance requirements; 

(3) The transaction is executed under an agreement that provides the [bank]       the right to accelerate, terminate, and close-out the transaction on a       net basis and to liquidate or set off collateral promptly upon an event       of default (including upon an event of bankruptcy, insolvency, or similar       proceeding) of the counterparty, provided that, in any such case, any exercise       of rights under the agreement will not be stayed or avoided under applicable       law in the relevant jurisdictions;6       and

(4) The [bank] has conducted and documented sufficient legal review to conclude       with a well-founded basis that the agreement meets the requirements of       paragraph (3) of this definition and is legal, valid, binding, and       enforceable under applicable law in the relevant jurisdictions.

Residential mortgage exposure means an exposure (other than       a securitization exposure, equity exposure, or excluded mortgage exposure)       that is managed as part of a segment of exposures with homogeneous risk       characteristics, not on an individual-exposure basis, and is:

(1) An exposure that is primarily secured by a first or subsequent lien       on one- to four-family residential property; or

(2) An exposure with an original and outstanding amount of $1 million       or less that is primarily secured by a first or subsequent lien on residential       property that is not one- to four-family.

Retail exposure means a residential mortgage exposure, a       qualifying revolving exposure, or an other retail exposure.

Retail exposure subcategory means the residential mortgage       exposure, qualifying revolving exposure, or other retail exposure subcategory.

Risk parameter means a variable used in determining risk-based capital       requirements for wholesale and retail exposures, specifically probability       of default (PD), expected loss given default (ELGD), loss given       default (LGD), exposure at default (EAD), or effective maturity (M).

Scenario analysis means a systematic process of obtaining       expert opinions from business managers and risk management experts to derive       reasoned assessments of the likelihood and loss impact of plausible high-severity       operational losses.

SEC means the U.S. Securities and Exchange Commission.

Securitization means a traditional securitization or a synthetic       securitization.

Securitization exposure means:

(1) An on-balance sheet or off-balance sheet credit exposure that arises       from a traditional or synthetic securitization (including credit-enhancing       representations and warranties); and

(2) Mortgage-backed pass-through securities guaranteed by Fannie Mae       or Freddie Mac. 

Senior securitization exposure means a securitization exposure that       has a first priority claim on the cash flows from the underlying exposures,       disregarding the claims of a service provider (such as a swap counterparty       or trustee, custodian, or paying agent for the securitization) to fees       from the securitization. A liquidity facility that supports an ABCP program       is a senior securitization exposure if the liquidity facility provider's       right to reimbursement of the drawn amounts is senior to all claims on       the cash flows from the underlying exposures except claims of a service       provider to fees.

Servicer cash advance facility means a facility under which       the servicer of the underlying exposures of a securitization may advance       cash to ensure an uninterrupted flow of payments to investors in the securitization,       including advances made to cover foreclosure costs or other expenses to       facilitate the timely collection of the underlying exposures. See also       eligible servicer cash advance facility.

Sovereign entity means a central government (including the       U.S. government) or an agency, department, ministry, or central bank of       a central government.

Sovereign exposure means:

(1) A direct exposure to a sovereign entity; or

(2) An exposure directly and unconditionally backed by the full faith and       credit of a sovereign entity.

Special purpose entity (SPE) means a corporation, trust,       or other entity organized for the specific purpose of holding underlying       exposures of a securitization, the activities of which are limited to those       appropriate to accomplish this purpose, and the structure of which is intended       to isolate the underlying exposures held by the entity from the credit       risk of the seller of the underlying exposures to the entity.

Synthetic securitization means a transaction in which:

(1) All or a portion of the credit risk of one or more underlying exposures       is transferred to one or more third parties through the use of one or more       credit derivatives or guarantees (other than a guarantee that transfers       only the credit risk of an individual retail exposure);

(2) The credit risk associated with the underlying exposures has been separated       into at least two tranches reflecting different levels of seniority; 

(3) Performance of the securitization exposures depends upon the performance       of the underlying exposures; and

(4) All or substantially all of the underlying exposures are financial       exposures (such as loans, commitments, credit derivatives, guarantees,       receivables, asset-backed securities, mortgage-backed securities, other       debt securities, or equity securities).

Tier 1 capital is defined in [the general risk-based capital rules], as modified in part II of this appendix.

Tier 2 capital is defined in [the general risk-based capital rules], as modified in part II of this appendix.

Total qualifying capital means the sum of tier 1 capital and       tier 2 capital, after all deductions required in this appendix.

Total risk-weighted assets means:

(1) The sum of:

(i) Credit risk-weighted assets; and

(ii) Risk-weighted assets for operational risk; minus

(2) The sum of:

(i) Excess eligible credit reserves not included in tier 2 capital;       and

(ii) Allocated transfer risk reserves.

Total wholesale and retail risk-weighted assets means the sum of       risk-weighted assets for wholesale exposures 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 assets not defined by an exposure category;       and risk-weighted assets for non-material portfolios of exposures (all       as determined in section 31) and risk-weighted assets for unsettled       transactions (as determined in section 35) minus the amounts deducted       from capital pursuant to [the general risk-based capital rules] (excluding       those deductions reversed in section 12).

Traditional securitization means a transaction in which:

(1) All or a portion of the credit risk of one or more underlying exposures       is transferred to one or more third parties other than through the use       of credit derivatives or guarantees;

(2) The credit risk associated with the underlying exposures has been separated       into at least two tranches reflecting different levels of seniority;

(3) Performance of the securitization exposures depends upon the performance       of the underlying exposures; and

(4) All or substantially all of the underlying exposures are financial       exposures (such as loans, commitments, credit derivatives, guarantees,       receivables, asset-backed securities, mortgage-backed securities, other       debt securities, or equity securities).

Tranche means all securitization exposures associated with       a securitization that have the same seniority level.

Underlying exposures means one or more exposures that have       been securitized in a securitization transaction. 

Unexpected operational loss (UOL) means the difference between       the [bank]'s operational risk exposure and the [bank]'s expected operational       loss.

Unit of measure means the level (for example, organizational       unit or operational loss event type) at which the [bank]'s operational risk       quantification system generates a separate distribution of potential operational       losses.

Value-at-Risk (VaR) means the estimate of the maximum amount       that the value of one or more exposures could decline due to market price       or rate movements during a fixed holding period within a stated confidence       interval.

Wholesale exposure means a credit exposure to a company,       individual, sovereign, or governmental entity (other than a securitization       exposure, retail exposure, excluded mortgage exposure, or equity exposure).       Examples of a wholesale exposure include:

(1) A non-tranched guarantee issued by a [bank] on behalf of a company;

(2) A repo-style transaction entered into by a [bank] with a company and       any other transaction in which a [bank] posts collateral to a company and       faces counterparty credit risk;

(3) An exposure that the [bank] treats as a covered position under [the market       risk rule] for which there is a counterparty credit risk charge in section 32;

(4) A sale of corporate loans by a [bank] to a third party in which the [bank]       retains full recourse; 

(5) An OTC derivative contract entered into by a [bank] with a company; 

(6) An exposure to an individual that is not managed by the [bank] as part       of a segment of exposures with homogeneous risk characteristics; and

(7) A commercial lease.

Wholesale exposure subcategory means the HVCRE or non-HVCRE       wholesale exposure subcategory.

(a) Except as modified by paragraph (c) of this section or by section 23,       each [bank] must meet a minimum ratio of: 

(1) Total qualifying capital to total risk-weighted assets of 8.0 percent;       and

(2) Tier 1 capital to total risk-weighted assets of 4.0 percent.

(b) Each [bank] must hold capital commensurate with the level and nature       of all risks to which the [bank] is exposed.

(c) When a [bank] subject to [the market risk rule] calculates its risk-based       capital requirements under this appendix, the [bank] must also refer to       [the market risk rule] for supplemental rules to calculate risk-based capital       requirements adjusted for market risk.

  

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    -  This requirement is met where all transactions          under the agreement are (i) executed under U.S. law and (ii) constitute          "securities contracts" or "repurchase agreements"          under section 555 or 559, respectively, of the Bankruptcy Code          (11 U.S.C. 555), qualified financial contracts under section 11(e)(8)          of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)),          or netting contracts between or among financial institutions under sections          401-407 of the Federal Deposit Insurance Corporation Improvement Act          of 1991 (12 U.S.C. 4401-4407) or the Federal Reserve Board's          Regulation EE (12 CFR part 231).   Return to text
    -  Intercompany accounts receivable and receivables          subject to contra-accounts between firms that buy and sell to each other          do not satisfy this criterion.   Return to text
    -  The life of a project concludes only when the          credit facility is converted to permanent financing or is sold or paid          in full. Permanent financing may be provided by the [bank] that provided          the ADC facility as long as the permanent financing is subject to the          [bank]'s underwriting criteria for long-term mortgage loans.   Return to text
    -  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.   Return to text
    -  This requirement is met where all transactions          under the agreement are (i) executed under U.S. law and (ii) constitute          "securities contracts" or "repurchase agreements"          under section 555 or 559, respectively, of the Bankruptcy          Code (11 U.S.C. 555 or 559), qualified financial          contracts under section 11(e)(8) of the Federal Deposit Insurance          Act (12 U.S.C. 1821(e)(8)), or netting contracts between or          among financial institutions under sections 401-407 of the Federal          Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4401-4407)          or the Federal Reserve Board's Regulation EE (12 CFR          part 231).   Return to text

Basel II Capital AccordNotice of Proposed Rulemaking (NPR)

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