This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents.

Rules and Regulations Federal Register

83467 

Vol. 88, No. 229 

Thursday, November 30, 2023 

1 88 FR 15306. 

2 12 CFR part 1240. 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1240 

RIN 2590–AB27 

Enterprise Regulatory Capital 

Framework—Commingled Securities, 

Multifamily Government Subsidy, 

Derivatives, and Other Enhancements 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Final rule. 

SUMMARY: The Federal Housing Finance 

Agency (FHFA or the Agency) is 

adopting a final rule that amends 

several provisions in the Enterprise 

Regulatory Capital Framework (ERCF) 

for the Federal National Mortgage 

Association (Fannie Mae) and the 

Federal Home Loan Mortgage 

Corporation (Freddie Mac, and with 

Fannie Mae, each an Enterprise). The 

final rule includes modifications related 

to guarantees on commingled securities, 

multifamily mortgage exposures secured 

by government-subsidized properties, 

and derivatives and cleared 

transactions, among other items. 

DATES: This final rule is effective on 

April 1, 2024, except for the 

amendments to §§ 1240.36, 1240.37, and 

1240.39, which are effective on January 

1, 2026. 

FOR FURTHER INFORMATION CONTACT: 

Andrew Varrieur, Senior Associate 

Director, Office of Capital Policy, (202) 

649–3141, Andrew.Varrieur@fhfa.gov; 

Christopher Vincent, Principal 

Financial Analyst, Office of Capital 

Policy, (202) 649–3685, 

Christopher.Vincent@fhfa.gov; or James 

Jordan, Associate General Counsel, 

Office of General Counsel, (202) 649– 

3075, James.Jordan@fhfa.gov. These are 

not toll-free numbers. For TTY/TRS 

users with hearing and speech 

disabilities, dial 711 and ask to be 

connected to any of the contact numbers 

above. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Introduction 

II. Overview of the Final Rule 

III. General Overview of Comments on the 

Proposed Rule 

IV. Final Rule Requirements 

A. Guarantees on Commingled Securities 

B. Multifamily Government Subsidy Risk 

Multiplier 

C. Derivatives and Cleared Transactions 

D. Original Credit Scores for Single-Family 

Mortgage Exposures Without a 

Representative Original Credit Score 

E. Guarantee Assets 

F. Mortgage Servicing Assets 

G. Time-Based Calls for CRT Exposures 

H. Interest-Only Mortgage-Backed 

Securities 

I. Single-Family Countercyclical 

Adjustment 

J. Stability Capital Buffer 

K. Advanced Approaches 

V. Representative Credit Scores for SingleFamily Mortgage Exposures 

VI. Effective Dates 

VII. Paperwork Reduction Act 

VIII. Regulatory Flexibility Act 

IX. Congressional Review Act 

I. Introduction 

On March 13, 2023, FHFA published 

in the Federal Register a notice of 

proposed rulemaking 1 (proposed rule) 

seeking comments on amendments to 

the ERCF 2 that would modify various 

regulatory capital requirements for the 

Enterprises. The proposed rule included 

modifications related to the following 

items: guarantees on commingled 

securities, multifamily mortgage 

exposures secured by properties with a 

government subsidy, derivatives and 

cleared transactions, credit scores for 

single-family mortgage exposures, 

guarantee assets, mortgage servicing 

assets (MSAs), time-based calls for 

credit risk transfer (CRT) exposures, 

interest-only (IO) mortgage-backed 

securities (MBS), the single-family 

countercyclical adjustment, the stability 

capital buffer, and the compliance date 

for the advanced approaches. 

FHFA proposed these amendments to 

implement lessons learned through the 

continued application of the ERCF and 

to better reflect the risks faced by the 

Enterprises in operating their 

businesses. Regulatory capital 

requirements that properly account for 

risk will allow the Enterprises to build 

capital to enhance their safety and 

soundness and protect U.S. taxpayers 

against financial losses. FHFA is now 

adopting in this final rule many of the 

proposed amendments, with minor 

modifications as discussed in the 

relevant sections of this preamble. 

FHFA currently is not adopting the 

proposed amendment related to 

calculating the representative credit 

score for a single-family mortgage 

exposure when multiple credit scores 

are present. The amendments in the 

final rule will bolster the ERCF as it 

aims to ensure that each Enterprise 

operates in a safe and sound manner 

and is positioned to fulfill its statutory 

mission to provide stability and ongoing 

assistance to the secondary mortgage 

market throughout the economic cycle, 

in particular during periods of financial 

stress. 

II. Overview of the Final Rule 

FHFA continuously monitors the risks 

faced by the Enterprises and reviews the 

appropriateness of the ERCF’s capital 

requirements and buffers to mitigate 

those risks. After carefully considering 

the comments on the proposed rule, 

FHFA has determined that the 

amendments in the final rule will 

enhance the ERCF, contribute to the 

Enterprises’ safety and soundness, and 

better enable the Enterprises to fulfill 

their statutory mission throughout the 

economic cycle. Specifically, the final 

rule will: 

• Reduce the risk weight and credit 

conversion factor for guarantees on 

commingled securities to 5 percent and 

50 percent, respectively, 

• Introduce a risk multiplier of 0.6 for 

multifamily mortgage exposures secured 

by properties with certain government 

subsidies, 

• Replace the current exposure 

methodology (CEM) with the 

standardized approach for counterparty 

credit risk (SA–CCR) as the method for 

computing exposure and risk-weighted 

asset amounts for derivatives and 

cleared transactions, 

• Update the credit score assumption 

to 680 for single-family mortgage 

exposures originated without a 

representative credit score, 

• Introduce a risk weight of 20 

percent for guarantee assets, 

• Align the timing of the first 

application of the single-family 

countercyclical adjustment with the first 

property value adjustment, and 


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83468 Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 

3See comments on Enterprise Regulatory Capital 

Framework—Commingled Securities, Multifamily 

Government Subsidy, Derivatives, and Other 

Enhancements, available at https://www.fhfa.gov/ 

SupervisionRegulation/Rules/Pages/CommentList.aspx?RuleID=754. The comment period for the 

proposed rule closed on May 12, 2023. 

4More information on the steps FHFA has taken 

to evaluate and address climate-related risks can be 

found on FHFA’s website, available at https://

www.fhfa.gov/PolicyProgramsResearch/Programs/ 

Pages/Climate-Change-and-ESG.aspx. 

• Delay the compliance date for the 

advanced approaches to January 1, 

2028. 

FHFA has also identified several 

aspects of the ERCF where 

modifications will clarify and enhance 

the usefulness of the framework. 

Therefore, the final rule will also: 

• Expand the definition of MSAs to 

include servicing rights on mortgage 

loans owned by the Enterprise, 

• Explicitly permit eligible timebased call options in the CRT 

operational criteria, subject to certain 

restrictions, 

• Amend the risk weights for IO MBS 

to 0 percent, 20 percent, and 100 

percent, conditional on whether the 

security was issued by the Enterprise, 

the other Enterprise, or a non-Enterprise 

entity, respectively, and 

• Clarify the calculation of the 

stability capital buffer when an increase 

and a decrease might be applied 

concurrently. 

III. General Overview of Comments on 

the Proposed Rule 

FHFA received 23 public comment 

letters on the proposed rule from a 

variety of interested parties, including 

private individuals, trade associations, 

consumer advocacy groups, and 

financial institutions.3 In general, and as 

discussed in greater detail in the 

relevant sections of this preamble, 

commenters were supportive of FHFA’s 

proposed amendments to the ERCF. 

One commenter recommended that 

FHFA consider climate-related financial 

risks in relation to most topics covered 

in the proposed rule. FHFA recognizes 

that climate change poses a serious 

threat to the U.S. housing finance 

system and the Agency has been 

actively working to ensure that its 

regulated entities are accounting for the 

risks associated with climate change 

and natural disasters.4 Outside of this 

rulemaking, FHFA will continue to 

evaluate how the ERCF can better 

account for climate-related financial 

risks. 

In addition to the feedback FHFA 

received on elements of the proposed 

rule, FHFA also received comments on 

many issues that are outside the scope 

of this rulemaking. In these letters, 

commenters offered views on important 

topics such as single-family and 

multifamily base risk weights, a 

multifamily countercyclical adjustment, 

a risk multiplier for multifamily senior 

housing, defeased loans, early 

redemption features in seniorsubordinated CRT structures, the CRT 

risk-weight floor, the calculation of the 

stability capital buffer, the commingling 

fee, pricing for single-family loans 

originated by third-parties, the 

alternative credit score implementation 

timeline, and the Enterprises’ exits from 

conservatorships. FHFA acknowledges 

the importance of these topics and will 

thoroughly consider the public’s 

feedback on these issues when relevant 

rulemakings and policy decisions are 

under consideration. 

IV. Final Rule Requirements 

A. Guarantees on Commingled 

Securities 

The proposed rule would reduce the 

risk weight under the standardized 

approach for guarantees on commingled 

securities from 20 percent to 5 percent 

and the credit conversion factor for 

guarantees on commingled securities 

from 100 percent to 50 percent. A 

commingled security is a security issued 

by one Enterprise that is backed, in 

whole or in part, by collateral issued by 

the other Enterprise, subject to certain 

restrictions. FHFA posited that the 20 

percent risk weight and 100 percent 

credit conversion factor for guarantees 

on commingled securities may not 

accurately reflect the counterparty risks 

posed by commingling activities and in 

certain circumstances may impair the 

liquidity of the Enterprises’ securities, 

which may adversely affect the nation’s 

housing finance market. 

Many commenters supported FHFA’s 

proposal to lower the risk weight and 

credit conversion factor for guarantees 

on commingled securities. Several 

commenters supported the proposed 5 

percent risk weight and 50 percent 

credit conversion factor. Others 

expressed the view that guarantees on 

commingled securities should have a 

risk weight and credit conversion factor 

lower than 5 percent and 50 percent, 

respectively, stating that lower capital 

requirements would enhance the 

liquidity of the common MBS known as 

the Uniform Mortgage-Backed Security 

(UMBS) and foster the stability and 

liquidity of the secondary mortgage 

market. Several commenters 

recommended that FHFA eliminate all 

capital requirements for guarantees on 

commingled securities, suggesting that 

any provisions in the ERCF that might 

deter commingling activity by hindering 

the fungibility of the Enterprises’ MBS 

or by driving commingling fees should 

be removed. One commenter opposed 

any non-zero risk weight because in the 

commenter’s view, it results in a double 

capital charge on the securities 

underlying the UMBS, as each 

Enterprise is already required to hold 

capital for the underlying securities it 

guarantees. 

The final rule adopts FHFA’s proposal 

to reduce the risk weight for guarantees 

on commingled securities from 20 

percent to 5 percent and the credit 

conversion factor for guarantees on 

commingled securities from 100 percent 

to 50 percent. FHFA is adopting a nonzero risk weight and a non-zero credit 

conversion factor because a key tenet of 

the ERCF is that all exposures with risk, 

however small, are capitalized. The 

Enterprises’ obligations do not have an 

unlimited explicit guarantee of the full 

faith and credit of the United States, 

despite the current support of the U.S. 

Department of the Treasury under the 

senior preferred stock purchase 

agreements (PSPAs). Therefore, the 

counterparty credit risk arising from 

guarantees on commingled securities is 

unique to the guaranteeing Enterprise 

and is not a double counting of the 

borrower credit risk on the underlying 

mortgage exposures. 

FHFA is retaining the 5 percent risk 

weight as proposed because the credit 

exposures arising out of these 

guarantees and the resultant losses an 

Enterprise would experience from 

commingled securities would likely 

occur in remote circumstances through 

sustained catastrophic levels of loss 

after the other Enterprise has exhausted 

its loss-absorbing financial resources. 

FHFA will continue to monitor the 

impact of a non-zero risk weight on the 

performance of the UMBS in keeping 

with the intent and purpose of the 

Single Security Initiative. Conceptually, 

the risk weight for guarantees on 

commingled securities in the final rule 

aligns with the risk-weight floor for 

retained CRT exposures. In addition, the 

final rule’s 50 percent credit conversion 

factor for guarantees on commingled 

securities aligns with the prevailing 

regulatory capital treatment for offbalance sheet undrawn commitments 

with an original maturity of more than 

one year that are not unconditionally 

cancelable by the Enterprise. 

B. Multifamily Government Subsidy 

Risk Multiplier 

The proposed rule would introduce a 

risk multiplier under the standardized 

approach equal to 0.6 for any 

multifamily mortgage exposures secured 

by one or more properties each with at 


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Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 83469 

5Section 42 of the Internal Revenue Code (26 

U.S.C.A. § 42); 26 CFR 1.42 (Treasury regulations); 

each State agency’s qualified allocation plan, 

regulations and compliance manual, along with a 

list of State and local LIHTC-allocating agencies, 

can be found at https://www.huduser.gov/portal/ 

datasets/lihtc.html. 

least one applicable government 

subsidy, subject to certain affordability 

criteria. Under the proposed rule, the 

applicable government subsidies would 

be limited to the following three 

primary subsidy programs: (i) LowIncome Housing Tax Credit (LIHTC),5

(ii) Section 8 project-based rental 

assistance, and (iii) State and local 

affordable housing programs that 

require the provision of affordable 

housing for the life of the loan. A 

multifamily mortgage exposure meeting 

the collateral criteria would qualify for 

the 0.6 risk multiplier if the Enterprise 

can verify that each property securing 

the exposure has at least 20 percent of 

its units restricted as affordable units, 

where the affordability restriction 

means the income of the renter is less 

than or equal to 80 percent of area 

median income (AMI). 

The current rule does not differentiate 

between multifamily mortgage 

exposures secured by properties with a 

government subsidy and by properties 

without a government subsidy. 

Properties with government subsidies 

represent an important segment of the 

Enterprises’ multifamily business 

models, and as part of the annual 

acquisition limits, FHFA directs the 

Enterprises to meet specific affordable 

housing or mission goals by acquiring 

multifamily loans collateralized by 

properties that charge rents affordable to 

certain segments of the population with 

specified income levels. Affordable 

property units are available to renters at 

a rental rate below the typical market 

rate, leading to generally strong demand 

for affordable property units and 

therefore to relatively stable vacancy 

rates. 

Many commenters expressed support 

for FHFA’s proposal to introduce a 

government subsidy risk multiplier to 

reflect that multifamily mortgage 

exposures associated with governmentsubsidized properties are less risky than 

those associated with unsubsidized 

properties, all else equal. Many 

commenters supported the 0.6 risk 

multiplier as proposed, while a few 

commenters recommended that FHFA 

adopt a multiplier smaller than 0.6. One 

commenter recommended that FHFA 

consider a pro-rated risk multiplier 

scaled between 0.6 and 1.0 when a 

multifamily mortgage exposure is 

secured by multiple properties and 

some but not all of the properties have 

an applicable government subsidy. 

One commenter recommended that 

FHFA require an Enterprise to measure 

the percentage of affordable units at 

each property only at acquisition rather 

than on a quarterly basis, which the 

commenter understood was FHFA’s 

intent, to avoid operational constraints 

and be consistent with the application 

of the housing goals regulation. Multiple 

commenters recommended that FHFA 

expand the affordability criteria to allow 

for exceptions in high-cost and veryhigh-cost markets. For example, one 

commenter suggested that an 80 percent 

of AMI threshold could be used in 

standard markets, while thresholds of 

100 percent of AMI and 120 percent of 

AMI could be used high-cost and veryhigh-cost markets, respectively. Several 

commenters recommended that FHFA 

expand the list of applicable 

government subsidies, with suggested 

additions including the rural rental 

housing program under Section 515 of 

the Housing Act of 1949 (Section 515 

Rural Rental Housing Loans), Fannie 

Mae’s Sponsor-Initiated Affordability 

(SIA) and Freddie Mac’s Tenant 

Advancement Commitment (TAC) 

programs, block grant programs such as 

HOME Investment Partnerships or 

Community Development Block Grants, 

and tax-exempt private activity bonds 

used for multifamily housing. 

The final rule adopts a multifamily 

government subsidy risk multiplier that 

is scaled between 0.6 and 1.0 depending 

on the properties securing the 

multifamily mortgage exposure. When 

some but not all properties securing a 

multifamily mortgage exposure have an 

applicable government subsidy, each 

property with an applicable government 

subsidy will receive a property 

multiplier of 0.6 and each property 

without an applicable government 

subsidy will receive a property 

multiplier of 1.0, and the government 

subsidy risk multiplier for the 

multifamily mortgage exposure will be 

calculated as a weighted average of the 

property multipliers using the total 

number of units per building as weights. 

In addition, the final rule adopts the 

affordability criteria and list of 

applicable government subsidies 

substantially as proposed, with the 

addition of Section 515 Rural Rental 

Housing Loans as an applicable 

government subsidy. Section 515 Rural 

Rental Housing Loans are direct loans 

made by the United States Department 

of Agriculture (USDA) to finance 

affordable rental housing for low- to 

moderate-income (50 percent to 80 

percent of AMI) renters in rural 

communities. This program is analogous 

to Section 8 project-based rental 

assistance, and as with LIHTC and 

Section 8, affordability is required for 

the life of the loan and accompanied by 

a use restriction. For these reasons, the 

final rule includes Section 515 Rural 

Housing Loans as an applicable 

government subsidy. 

To ensure that the applicable subsidy 

programs meet the affordability criteria 

without creating ongoing compliance 

and operational burdens for the 

Enterprises, the final rule requires that 

at least 20 percent of the property’s 

units are restricted to be affordable units 

per a regulatory agreement, recorded 

use restriction, a housing-assistance 

payments contract, or other restrictions 

codified in loan agreements. Each 

program included in the list of 

applicable government subsidies has its 

own requirements that ensure the 

subsidies are significant, long-term, and 

continuous. By requiring the 

affordability criteria to be included in 

contractual provisions, FHFA believes it 

is not necessary for the final rule to 

specify that the percentage of affordable 

units be measured only at acquisition. 

FHFA expects an Enterprise to validate 

that a property is receiving a valid 

government subsidy at acquisition in 

order for the multifamily mortgage 

exposure secured by that property to 

receive a government subsidy risk 

multiplier less than 1.0, and 

subsequently not to undertake 

additional compliance exercises on top 

of what is required by the subsidy 

programs themselves. 

The final rule does not include a 

government subsidy risk multiplier less 

than 0.6. In a data-driven exercise, 

FHFA determined that a 40 percent 

decrease in regulatory capital 

appropriately captures the lower credit 

risk associated with multifamily 

mortgage exposures secured by 

properties with a significant, long-term, 

and continuous government subsidy. 

The final rule does not include 

exceptions for high-cost and very-highcost markets in order to mitigate the 

operational complexity of applying the 

government subsidy risk multiplier, as 

rental costs and income levels within 

metro areas change over time. 

Finally, the final rule does not 

include the Enterprises’ voluntary rent 

restriction programs (SIA and TAC), 

block grant programs, or tax-exempt 

private activity bonds as applicable 

government subsidies. While these 

programs do often support affordable 

housing and provide benefits to lenders, 

FHFA sought to include as applicable 

government subsidies programs 

administered by the Federal or a State 

government that span most of the 


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83470 Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 

6See 85 FR 4362 (Jan. 24, 2020). 

Enterprises’ affordable businesses and 

that have significant performance data 

available. Many of the additional 

programs identified by commenters as 

recommended inclusions are either nongovernmental, are used as a layer in a 

financing stack in conjunction with an 

already applicable government subsidy, 

do not have performance data readily 

available for FHFA to assess, or are not 

specifically oriented to the creation or 

preservation of affordable rental 

housing. 

C. Derivatives and Cleared Transactions 

The proposed rule would require an 

Enterprise to calculate risk-weighted 

assets for the standardized approach 

based on the exposure amounts of its 

over-the-counter (OTC) derivative 

contracts, cleared derivative contracts, 

and contributions of commitments to 

mutualized loss sharing agreements 

with central counterparties (i.e., default 

fund contributions) calculated using 

SA–CCR. The proposed rule would also 

require an Enterprise to use these same 

exposure amounts for inclusion in 

adjusted total assets. The current 

regulation requires an Enterprise to use 

the CEM to determine the exposure 

amounts of its OTC derivative contracts 

and cleared derivative contracts and the 

risk-weighted assets amounts of its 

default fund contributions. 

The proposed rule would require an 

Enterprise to apply SA–CCR in the 

following ways: 

1. Netting Sets 

The proposed rule would require an 

Enterprise to calculate the exposure 

amount of its derivative contract at the 

netting set level. The proposed rule 

would define a netting set to mean 

either one derivative contract between 

an Enterprise and a single counterparty, 

or a group of derivative contracts 

between an Enterprise and a single 

counterparty that are subject to a 

qualifying master netting agreement 

(QMNA). 

2. Hedging Sets 

To calculate potential future exposure 

(PFE), the proposed rule would require 

an Enterprise to fully or partially net 

derivative contracts within the same 

netting set that share similar risk factors. 

This approach would recognize that 

derivative contracts with similar risk 

factors share economically meaningful 

relationships with close correlations 

that make netting appropriate. 

Under SA–CCR, a hedging set means 

those derivative contracts within the 

same netting set that share similar risk 

factors. The proposed rule would define 

five types of hedging sets—interest rate, 

exchange rate, credit, equity, and 

commodities—and would provide 

formulas for netting within each 

hedging set. Each formula would be 

particular to each hedging set type and 

would reflect the regulatory correlation 

assumptions between risk factors in the 

hedging set. 

3. Derivative Contract Amount for the 

PFE Component Calculation 

The proposed rule would require an 

Enterprise to use an adjusted derivative 

contract amount for the PFE component 

calculation under SA–CCR. However, as 

part of the estimate, SA–CCR would use 

updated supervisory factors that reflect 

the stress volatilities observed during 

the financial crisis. The supervisory 

factors would reflect the variability of 

the primary risk factors of the derivative 

contract over a one-year time horizon. In 

addition, SA–CCR would apply a 

separate maturity factor to each 

derivative contract that would scale 

down, if necessary, the default one-year 

risk horizon of the supervisory factor to 

the risk horizon appropriate for the 

derivative contract. 

4. Collateral Recognition and 

Differentiation Between Margined and 

Unmargined Derivative Contracts 

Under the proposed rule, SA–CCR 

would account for collateral directly 

within the exposure amount calculation. 

For replacement cost, the proposed rule 

would recognize collateral on a one-forone basis. For PFE, SA–CCR would use 

the concept of a PFE multiplier, which 

would allow an Enterprise to reduce the 

PFE amount through recognition of 

over-collateralization, in the form of 

both variation margin and independent 

collateral. It would also account for 

negative fair value amounts of the 

derivative contracts within the netting 

set. In addition, the proposed rule 

would differentiate between margined 

and unmargined derivative contracts, 

such that the netting set subject to 

variation margin would always have an 

exposure amount no higher than an 

equivalent netting set that is not subject 

to a variation margin agreement. 

To accommodate the introduction of 

the SA–CCR into the ERCF’s 

standardized approach, the proposed 

rule would make a series of 

corresponding modifications, including 

adding appropriate defined terms to 

ERCF’s definitions and updating the 

calculation of total risk-weighted assets. 

Notably, the proposed rule would 

replace the current requirements for 

cleared transactions (12 CFR 1240.37) 

and collateralized transactions (12 CFR 

1240.39) with modified requirements 

from the U.S. banking framework’s 

advanced approaches (12 CFR 217.133 

and 12 CFR 217.132(b)). As a result, the 

proposed rule’s requirements for cleared 

transactions would reflect the U.S. 

banking framework’s risk weights on 

cleared transactions and risk-weighted 

assets on default fund contributions. 

The proposal would omit exposure 

calculations related to internal model 

methodology to reduce reliance on the 

Enterprises’ internal model results. 

The proposed rule would maintain 

the current collateral haircut approach 

and standard supervisory haircuts for 

collateralized transactions. However, 

the proposed rule would remove the 

current simple approach and add the 

U.S. banking framework’s simple valueat-risk (VaR) methodology. 

The proposed rule would also add 

credit valuation adjustment (CVA) riskweighted assets to the calculation of 

standardized total risk-weighted assets. 

The CVA is a fair value adjustment that 

reflects counterparty credit risk in the 

valuation of OTC derivative contracts. 

CVA risk-weighted assets cover the risk 

of incurring mark-to-market losses 

because of the deterioration in the 

creditworthiness of an Enterprise’s 

counterparties. The proposed rule 

would include the U.S. banking 

framework’s formulaic simple CVA 

approach but not the advanced CVA 

approach to reduce reliance on the 

Enterprises’ internal model results. 

Two commenters supported FHFA’s 

proposal to replace CEM with SA–CCR, 

with certain revisions. Both commenters 

recommended an implementation 

timeline of no less than 24 months due 

to the complexity of implementing SA– 

CCR and to be generally consistent with 

the transition period offered to large 

U.S. banking organizations when they 

implemented similar financial 

regulatory reforms.6 One commenter 

recommended that FHFA provide 

optionality allowing an Enterprise to 

use either CEM or SA–CCR after any 

regulatory transition period. The 

commenter stated that Enterprise 

derivative portfolios more closely 

resemble the derivative portfolios of 

U.S. banking organizations subject to 

the standardized approach than those 

subject to the advanced approaches, so 

CEM might be more appropriate. 

The final rule adopts the requirements 

that an Enterprise must determine the 

exposure amounts of its OTC derivative 

contracts, cleared derivative contracts, 

and default fund contributions, for use 

in calculating risk-weighted assets 

under the standardized approach and 

adjusted total assets, using SA–CCR 

substantially as proposed, with a 


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7See 85 FR 82150 (Dec. 17, 2020). 

8 In August 2021, FHFA announced that to 

expand access to credit in a safe and sound manner, 

Fannie Mae would begin to consider rental payment 

history as part of its mortgage underwiring 

processes (https://www.fhfa.gov/mobile/Pages/ 

public-affairs-detail.aspx?PageName=FHFAAnnounces-Inclusion-of-Rental-Payment-History-inFannie-Maes-Underwriting-Process.aspx). In July 

2022, Freddie Mac made a similar announcement 

(https://freddiemac.gcs-web.com/news-releases/ 

news-release-details/freddie-mac-takes-furtheraction-help-renters-achieve). 

transition period resulting in an 

effective date of January 1, 2026. FHFA 

continues to believe that relative to 

CEM, SA–CCR provides important 

improvements to risk sensitivity and 

calibration, including by differentiating 

between margined and unmargined 

derivative contracts and recognizing the 

benefits of netting agreements, resulting 

in more appropriate capital 

requirements for derivative contracts. 

The final rule also adopts the 

requirement to add CVA risk-weighted 

assets to the calculation of standardized 

total risk-weighted assets. 

FHFA agrees with commenters that a 

24-month transition period will allow 

the Enterprises a suitable amount of 

time to update their systems and 

processes to implement SA–CCR. 

During the transition period, the 

Enterprises must continue to use CEM 

to calculate exposure amounts for 

derivatives and cleared transactions, as 

provided in prior §§ 1240.36, 1240.37, 

and 1240.39.7 On January 1, 2026, an 

Enterprise must calculate exposure 

amounts for derivates and cleared 

transactions using SA–CCR as detailed 

in this §§ 1240.36, 1240.37, and 

1240.39. 

Regarding the commenter’s suggestion 

to make SA–CCR an optional 

requirement, although the Enterprises’ 

derivatives portfolios are relatively 

uncomplicated today, that may not be 

the case after the Enterprises exit their 

conservatorships. Furthermore, in 

constructing the ERCF, FHFA has 

consistently developed requirements 

similar to those applicable to banking 

organizations subject to the advanced 

approaches rather than those subject to 

the standardized approach. For 

example, the ERCF includes a stability 

capital buffer (analogous to surcharge 

for global systemically important 

banks), a leverage buffer, market risk 

capital requirements, and operational 

risk capital requirements, none of which 

are applicable to banking organizations 

subject to the standardized approach. 

Following this reasoning, and to limit 

certain capital arbitrage opportunities 

between Enterprises and between the 

Enterprises and large banking 

organizations, the final rule does not 

include CEM as an option for 

calculating regulatory capital ratios after 

the transition period. 

D. Original Credit Scores for SingleFamily Mortgage Exposures Without a 

Representative Original Credit Score 

The proposed rule would require an 

Enterprise to assign an original credit 

score of 680 under the standardized 

approach to a single-family mortgage 

exposure without a permissible credit 

score at origination (unscored), subject 

to Enterprise verification that none of 

the borrowers have a credit score at one 

of the repositories. The current 

regulation requires an Enterprise to 

assign a credit score of 600 to any 

single-family mortgage exposure that is 

unscored. The current regulation’s 

conservative assignation places singlefamily mortgage exposures with 

unscored borrowers in the lowest 

possible ERCF credit score buckets 

across the single-family base grids, 

implying the highest level of risk. 

Four commenters expressed full 

support for FHFA’s proposal to increase 

the assigned original credit score for 

unscored single-family mortgage 

exposures from 600 to 680. Therefore, to 

reflect post-crisis improvements in 

regulatory, underwriting, and lending 

standards, as well as the recent 

inclusions of positive rental payment 

histories in the Enterprises’ automated 

underwriting systems,8 the final rule 

adopts the requirement to assign an 

original credit score of 680 to unscored 

single-family mortgage exposures 

without a permissible credit score, 

subject to Enterprise verification that 

none of the borrowers have a credit 

score at one of the repositories, as 

proposed. 

E. Guarantee Assets 

The proposed rule would introduce a 

20 percent risk weight under the 

standardized approach for an 

Enterprise’s guarantee assets. A 

guarantee asset is an on-balance sheet 

asset that represents the present value of 

a future consideration for providing a 

financial guarantee on a portfolio of 

mortgage exposures not recognized on 

the balance sheet. Examples of such offbalance sheet exposures include, but are 

not limited to, Freddie Mac’s 

multifamily K-deals, Fannie Mae’s 

multifamily bond credit enhancements, 

and certain single-family guarantee 

arrangements without securitization. 

The current ERCF does not include an 

explicit risk weight for guarantee assets. 

As an ‘‘other asset’’ not specifically 

assigned a different risk weight, an 

Enterprise is currently required to 

assign a 100 percent risk weight 

(§ 1240.32(i)(5)) to guarantee assets. 

One commenter supported FHFA’s 

proposed 20 percent credit risk weight 

for guarantee assets. In addition, in 

response to a question posed in the 

proposed rule, the commenter 

recommended that FHFA not include 

guarantee assets in the definition of 

covered positions subject to market risk 

capital requirements. The commenter 

expressed the view that because 

guarantee assets are not positions held 

for the purpose of short-term resale or 

with the intent of benefitting from shortterm price movements, the positions do 

not contribute to an Enterprise’s interest 

rate risk. 

The final rule adopts the risk weight 

of 20 percent for guarantee assets as 

proposed. In addition, and in 

consideration of the feedback FHFA 

received, the final rule does not include 

guarantee assets in the definition of 

covered positions subject to market risk 

capital requirements. 

F. Mortgage Servicing Assets 

The proposed rule would modify the 

definition of MSAs to include the 

contractual right to service any mortgage 

loans, regardless of the owner of the 

loan at the time the servicing rights are 

acquired. Currently, the ERCF defines 

an MSA as the contractual right to 

service for a fee mortgage loans that are 

owned by others. Therefore, this 

definition omits MSAs created when an 

Enterprise acquires servicing rights on 

mortgage loans already owned by the 

Enterprise, bifurcating the capital 

treatment for MSAs by the owner of the 

underlying loans. 

One commenter supported FHFA’s 

proposal to expand the definition of 

MSA to include servicing rights on 

mortgage loans owned by the acquiring 

Enterprise. No commenters raised 

objections or provided alternative 

recommendations to the proposal. The 

final rule adopts the definition of MSA 

as proposed. 

G. Time-Based Calls for CRT Exposures 

The proposed rule would amend the 

ERCF to permit eligible time-based calls 

for CRT exposures under the 

standardized approach, defining an 

eligible time-based call as a time-based 

call that: 

(i) Is exercisable solely at the 

discretion of the issuing Enterprise, and 

with a non-objection letter from FHFA 

prior to being exercised; 

(ii) Is not structured to avoid 

allocating losses to securitization 

exposures held by investors or 

otherwise structured to provide at most 


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9 12 CFR 1240.44. 

de minimis credit protection to the 

securitization; and 

(iii) Is only exercisable five years after 

the securitization exposure’s issuance 

date. 

Under the current regulation, timebased calls, which are integral to the 

Enterprises’ credit risk management and 

are routinely used by the Enterprises to 

manage CRT economics, are not 

explicitly included as eligible clean-up 

calls in the credit risk transfer 

approach.9

Three commenters supported FHFA’s 

proposal to permit eligible time-based 

calls for CRT exposures. One 

commenter recommended that FHFA 

modify the proposed definition of timebased calls to be a contractual provision 

that permits an originating Enterprise to 

redeem a securitization or credit risk 

transfer exposure on or after a specified 

redemption or cancellation date to 

clarify FHFA’s intent that eligible timebased calls will be permitted for all CRT 

exposures. While this is FHFA’s intent, 

the Agency believes that the proposed 

definition without the phrase ‘‘or credit 

risk transfer’’ is sufficient because the 

definition of a securitization exposure 

in § 1240.2 explicitly includes both 

retained CRT and acquired CRT 

exposures. Further, the proposed rule 

would only modify the operational 

criteria for credit risk transfers 

(§ 1240.2(c)), implying that the only 

securitization exposures that would be 

affected by the amendment are CRT 

exposures. One commenter 

recommended that FHFA modify 

proposed restriction (i) to be ‘‘is 

exercisable no less than five years after 

the securitization or credit risk transfer 

issuance or effective date,’’ because the 

commenter expressed the view that 

adding ‘‘or effective date’’ would clarify 

FHFA’s intent that eligible time-based 

calls will be permitted for CRT that do 

not involve securitizations, such as 

reinsurance transactions. Finally, one 

commenter recommended that for CRT 

involving single-family mortgage 

exposures with terms less than or equal 

to 20 years, the proposed five-year 

exercise restriction be shortened to four 

years. 

The final rule adopts the ERCF 

amendment permitting eligible timebased calls for CRT exposures 

substantially as proposed, with 

revisions reflecting two commenter 

suggestions. First, the final rule adopts 

the suggested clarification that an 

eligible time-based call is one that is 

exercisable no less than a certain 

number of years after the securitization 

or CRT issuance or effective date. This 

revision reflects FHFA’s intent that 

eligible time-based calls will be 

permitted for CRT that do not involve 

securitizations. Second, the final rule 

adopts the suggested modification to 

shorten the exercise restriction for CRT 

involving single-family mortgage 

exposures with terms less than or equal 

to 20 years to no less than four years 

after the CRT issuance or effective date. 

This revision reflects the risk reduction 

associated with the faster amortization 

of shorter-term loans relative to longerterm loans. 

H. Interest-Only Mortgage-Backed 

Securities 

The proposed rule would clarify that, 

under the standardized approach, an 

Enterprise must assign a zero percent 

risk weight to an IO MBS issued and 

guaranteed by the Enterprise, a 20 

percent risk weight to an IO MBS issued 

and guaranteed by the other Enterprise, 

and a 100 percent risk weight to an IO 

MBS issued by a non-Enterprise entity. 

Currently, the ERCF contains conflicting 

requirements that an Enterprise must 

assign a zero percent risk weight to any 

MBS guaranteed by the Enterprise (other 

than any retained CRT exposure), but 

also that the risk weight for a noncredit-enhancing IO MBS must not be 

less than 100 percent. 

One commenter supported FHFA’s 

proposal to amend the risk weights for 

IO MBS to clarify which risk weight 

must be applied when an IO MBS is 

issued and guaranteed by the Enterprise 

versus when an IO MBS is issued by a 

non-Enterprise entity. No commenters 

raised objections or provided alternative 

recommendations to the proposal. The 

final rule adopts the updated IO MBS 

risk weights as proposed. 

I. Single-Family Countercyclical 

Adjustment 

The proposed rule would require 

under the standardized approach an 

Enterprise to apply to a single-family 

mortgage exposure’s loan-to-value ratio 

(LTV) the first single-family 

countercyclical adjustment 

simultaneously with the first property 

value adjustment, six months after 

acquisition. Currently, an Enterprise is 

required to apply the first single-family 

countercyclical adjustment after 

acquisition without delay, while the 

Enterprise is required to apply the first 

property value adjustment after a sixmonth delay to allow for a rate of 

change to be computed following the 

quarterly release of FHFA’s Purchaseonly State-level House Price Index. 

One commenter supported FHFA’s 

proposal to align the timing between the 

application of the first single-family 

countercyclical adjustment and the first 

property value adjustment. However, 

the commenter recommended that both 

adjustments be applied immediately 

rather than after a six-month delay. The 

commenter did not provide analytical 

support for this recommendation. 

The final rule adopts the timing 

adjustment to the application of the first 

single-family countercyclical 

adjustment as proposed. FHFA believes 

this modification will reduce the 

volatility in the capital requirement for 

a single-family mortgage exposure over 

the first six months after origination and 

mitigate the incentive for the 

Enterprises to delay acquiring credit 

protection. 

J. Stability Capital Buffer 

The proposed rule would clarify that 

if an increase and decrease in the 

stability capital buffer are scheduled for 

the same date, the Enterprise should 

rely on the more recent data and 

implement the decrease, disregarding 

the increase. Under the ERCF, increases 

in the stability capital buffer are 

implemented with a two-year delay, 

while decreases are implemented with a 

one-year delay. This delay difference 

potentially creates a situation where an 

increase and a decrease in the stability 

capital buffer are scheduled to become 

effective at the same time. 

One commenter supported FHFA’s 

proposed clarification to the calculation 

of the stability capital buffer. No 

commenters raised objections or 

provided alternative recommendations 

to the proposal. The final rule adopts 

the clarification as proposed. 

K. Advanced Approaches 

The proposed rule would extend the 

compliance date for an Enterprise’s 

advanced approaches from January 1, 

2025, to January 1, 2028. The ERCF’s 

advanced approaches for determining 

risk-weighted assets rely on an 

Enterprise’s internal models, and 

require an Enterprise to maintain its 

own processes for identifying and 

assessing credit, market, and operational 

risk. They are intended to ensure that an 

Enterprise continues to enhance its risk 

management and analytical systems and 

not rely solely on its regulator’s views 

on risk tolerance, risk measurement, and 

capital allocation. 

Commenters fully supported FHFA’s 

proposal to extend the compliance date 

of the advanced approaches. One 

commenter expressed the view that the 

advanced approaches are exceptionally 

burdensome and undermine the capital 

visibility provided by the ERCF’s 

standardized approach. 


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10See 88 FR 64028 (Sept. 18, 2023). 

11FHFA Announces Validation of FICO 10T and 

VantageScore 4.0 for Use by Fannie Mae and 

Freddie Mac | Federal Housing Finance Agency, 

available at https://www.fhfa.gov/Media/ 

PublicAffairs/Pages/FHFA-Announces-Validationof-FICO10T-and-Vantage-Score4-for-FNMFRE.aspx. 

12See https://www.fhfa.gov/Media/PublicAffairs/ 

Pages/FHFA-Announces-Public-EngagementProcess-for-Implementation-of-Updated-CreditScore-Requirements.aspx. 

13See https://www.fhfa.gov/Media/PublicAffairs/ 

Pages/FHFA-Announces-Next-Phase-of-PublicEngagement-Process-for-Updated-Credit-ScoreRequirements.aspx. 

The final rule extends the compliance 

date for an Enterprise’s advanced 

approaches to January 1, 2028, as 

proposed. In the proposed rule, FHFA 

discussed how U.S. banking regulators 

were signaling potential changes in the 

U.S. banking framework that would 

further strengthen capital rules by 

reducing reliance on internal bank 

models. To this end, the OCC, Federal 

Reserve Board, and the Federal Deposit 

Insurance Corporation (FDIC) recently 

issued a notice of proposed 

rulemaking 10 that would substantially 

revise the regulatory capital framework 

for banking organizations with total 

assets of $100 billion or more and 

banking organizations with significant 

trading activity, including by replacing 

the advanced approaches with a new 

expanded risk-based approach. 

V. Representative Credit Scores for 

Single-Family Mortgage Exposures 

FHFA currently is not adopting the 

proposed modification to the procedure 

for selecting a representative credit 

score for a single-family mortgage 

exposure when multiple credit scores 

have been submitted for at least one 

borrower. The proposed methodology 

would have required an Enterprise to 

use an average credit score for each 

borrower whenever multiple scores are 

present as opposed to the current 

methodology which requires an 

Enterprise to select the median borrower 

credit score when three scores are 

present or the lower borrower credit 

score when two scores are present. 

FHFA proposed this modification to 

prevent a downward shift in 

representative credit scores under the 

current methodology once the 

Enterprises require a minimum of two, 

rather than three, credit reports (bimerge credit score requirement) from 

the repositories.11 While the 

implementation date for the bi-merge 

credit score requirement has yet to be 

announced, the proposed modification 

would have positioned the Enterprises 

to account for the new requirement 

upon implementation. 

Many commenters supported FHFA’s 

proposal to modify the current 

procedure for selecting a representative 

credit score for single-family mortgage 

exposures. However, other commenters 

expressed concern over the proposed 

change. Several commenters stated that 

it is difficult or impossible to evaluate 

the proposed change without additional 

data and when the eventual effects of 

the bi-merge credit score requirement 

and the transition to alternative credit 

scores are not yet known. Others 

expressed concern that changes to the 

ERCF could lead to policy changes at 

the Enterprises that would front-run the 

implementation of the bi-merge credit 

score requirement and the transition to 

alternative credit scores. FHFA also 

received a number of comments on the 

bi-merge credit score requirement and 

on the use of alternative credit scores 

more generally, but those initiatives are 

outside the scope of this rulemaking. 

One commenter provided empirical 

support for FHFA’s proposal to use the 

average credit score when multiple 

scores are present rather than the 

median/lower score. However, the 

commenter also suggested that FHFA 

should require a third score when the 

two submitted scores are more than 30 

points apart to minimize the impact of 

outliers. In addition, the commenter 

requested further analysis on, among 

other things, the potential impact of the 

bi-merge credit score requirement on 

race, gender, and geographic location for 

high-LTV loans with bi-merge 

representative credit scores greater than 

or equal to 10 points higher or lower 

than the score derived under the trimerge process. Several commenters 

expressed the view that they could not 

comment on the appropriateness of the 

representative credit score proposal 

until FHFA or the Enterprises released 

additional data on the bi-merge credit 

score requirement under Classic FICO 

scores and under the new alternative 

credit scoring models. Several 

commenters also expressed criticism 

that FHFA’s analysis only considered 

Classic FICO scores, suggesting that the 

results of the analysis might differ after 

the Enterprises begin accepting 

alternative credit scores. 

FHFA proposed this narrow change to 

the calculation of a representative credit 

scores to prepare the ERCF for the 

eventual transition to the bi-merge 

credit score requirement. In March 

2023, FHFA and the Enterprises 

announced plans for stakeholder input 

on proposed milestones as the 

Enterprises work to replace the Classic 

FICO credit score model with the FICO 

10T and the VantageScore 4.0 credit 

score models and transition from the trimerge requirement to the bi-merge 

requirement.12 In September 2023, 

FHFA announced additional 

opportunities for ongoing public 

engagement to facilitate the transition to 

updated credit score models and credit 

report requirements for loans acquired 

by the Enterprises, and also that the 

Agency expects the implementation 

date for the bi-merge requirement to 

occur later than the first quarter of 2024, 

as was initially proposed.13 In 

consideration of the delayed 

implementation date for the bi-merge 

requirement and the ongoing public 

engagement related to credit scores, 

FHFA has determined to not adopt the 

proposed change to the calculation of 

representative credit scores at this time. 

FHFA may, in the future, finalize this 

aspect of the proposed rule. The 

Agency’s options for doing so include 

adopting the changes substantially as 

proposed without another notice and 

comment period, reopening the 

comment period for the proposed 

change, or reproposing this item in 

another notice of proposed rulemaking. 

VI. Effective Dates 

Under the rule establishing the ERCF 

published on December 17, 2020, an 

Enterprise will not be subject to any 

requirement in the ERCF until the 

compliance date for the requirement as 

detailed in the ERCF. The effective date 

for the ERCF was February 16, 2021. 

With the exception of the amendments 

related to derivatives and cleared 

transactions, the effective date for the 

amendments in this final rule will be 

April 1, 2024. The effective date for the 

amendments implementing SA–CCR 

and for the other amendments to 

§§ 1240.36, 1240.37, and 1240.39 will be 

January 1, 2026. 

VII. Paperwork Reduction Act 

The Paperwork Reduction Act (PRA) 

(44 U.S.C. 3501 et seq.) requires that 

regulations involving the collection of 

information receive clearance from the 

Office of Management and Budget 

(OMB). The final rule contains no such 

collection of information requiring OMB 

approval under the PRA. Therefore, no 

information has been submitted to OMB 

for review. 

VIII. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

(5 U.S.C. 601 et seq.) requires that a 

regulation that has a significant 

economic impact on a substantial 

number of small entities, small 

businesses, or small organizations must 

include an initial regulatory flexibility 


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83474 Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 

analysis describing the regulation’s 

impact on small entities. FHFA need not 

undertake such an analysis if the agency 

has certified that the regulation will not 

have a significant economic impact on 

a substantial number of small entities (5 

U.S.C. 605(b)). FHFA has considered the 

impact of the final rule under the RFA. 

FHFA certifies that the final rule will 

not have a significant economic impact 

on a substantial number of small entities 

because the final rule is applicable only 

to the Enterprises, which are not small 

entities for purposes of the RFA. 

IX. Congressional Review Act 

In accordance with the Congressional 

Review Act (5 U.S.C. 801 et seq.), FHFA 

has determined that this final rule is a 

major rule and has verified this 

determination with the Office of 

Information and Regulatory Affairs of 

OMB. 

List of Subjects for 12 CFR Part 1240 

Capital, Credit, Enterprise, 

Investments, Reporting and 

recordkeeping requirements. 

For the reasons stated in the 

preamble, under the authority of 12 

U.S.C. 4511, 4513, 4513b, 4514, 4515– 

17, 4526, 4611–4612, 4631–36, FHFA 

amends part 1240 of subchapter C of 

title 12 of the Code of Federal 

Regulations chapter XII, as follows: 

PART 1240—CAPITAL ADEQUACY OF 

ENTERPRISES 

■ 1. The authority citation for part 1240 

continues to read as follows: 

Authority: 12 U.S.C. 4511, 4513, 4513b, 

4514, 4515, 4517, 4526, 4611–4612, 4631–36. 

■ 2. Effective April 1, 2024, amend 

§ 1240.2 by: 

■ a. Revising paragraphs (1) through (3) 

in the definition of ‘‘Adjusted total 

assets’’; 

■ b. Adding in alphabetical order 

definitions for ‘‘Backtesting,’’ ‘‘Basis 

derivative contract,’’ ‘‘Commercial enduser,’’ ‘‘Commingled security,’’ ‘‘Credit 

default swap,’’ and ‘‘Credit valuation 

adjustment’’; 

■ c. Removing the definitions of 

‘‘Current exposure’’ and ‘‘Current 

exposure methodology’’; 

■ d. Adding in alphabetical order a 

definition for ‘‘Eligible time-based call’’; 

■ e. In the definition of ‘‘Exposure 

amount’’: 

■ i. In paragraph (1), removing the 

words ‘‘; an OTC derivative contract’’ 

and adding in their place the words 

‘‘(other than an OTC derivative 

contract’’; and 

■ ii. In paragraph (3), adding the words 

‘‘or exposure at default (EAD)’’ after the 

word ‘‘amount’’; 

■ f. Revising paragraph (2) in the 

definition of ‘‘Financial collateral’’; 

■ g. Adding in alphabetical order 

definitions for ‘‘Guarantee asset’’ and 

‘‘Independent collateral’’; 

■ h. Revising the definition of 

‘‘Mortgage servicing assets (MSAs)’’; 

■ i. Adding in alphabetical order a 

definition for ‘‘Net independent 

collateral amount’’; 

■ j. Revising the definition of ‘‘Netting 

set’’; 

■ k. Adding in alphabetical order 

definitions for ‘‘Qualifying crossproduct master netting agreement’’ and 

‘‘Speculative grade’’; 

■ l. In the definition of ‘‘Standardized 

total risk-weighted assets’’, 

redesignating paragraphs (1)(vi) and 

(1)(vii) as paragraphs (1)(vii) and 

(1)(viii), adding new paragraph (1)(vi), 

and revising newly designated 

paragraph (i)(viii); and 

■ m. Adding in alphabetical order 

definitions for ‘‘Sub-speculative grade’’, 

‘‘Time-based call’’, ‘‘Uniform Mortgagebacked Security’’, ‘‘Value-at-Risk’’, 

‘‘Variation margin’’, ‘‘Variation margin 

amount’’, and ‘‘Volatility derivative 

contract’’. 

The revisions and additions read as 

follows: 

§ 1240.2 Definitions. 

* * * * * 

Adjusted total assets * * * 

(1) The balance sheet carrying value 

of all of the Enterprise’s on-balance 

sheet assets, plus the value of securities 

sold under a repurchase transaction or 

a securities lending transaction that 

qualifies for sales treatment under 

Generally Accepted Accounting 

Principles (GAAP), less amounts 

deducted from tier 1 capital under 

§ 1240.22(a), (c), and (d), and less the 

value of securities received in securityfor-security repo-style transactions, 

where the Enterprise acts as a securities 

lender and includes the securities 

received in its on-balance sheet assets 

but has not sold or re-hypothecated the 

securities received, less the fair value of 

any derivative contracts; 

(2)(i) The potential future exposure 

(PFE) for each netting set to which the 

Enterprise is a counterparty (including 

cleared transactions except as provided 

in paragraph (9) of this definition and, 

at the discretion of the Enterprise, 

excluding a forward agreement treated 

as a derivative contract that is part of a 

repurchase or reverse repurchase or a 

securities borrowing or lending 

transaction that qualifies for sales 

treatment under GAAP), as determined 

under § 1240.36(c)(7), in which the term 

C in § 1240.36(c)(7)(i) equals zero, and, 

for any counterparty that is not a 

commercial end-user, multiplied by 1.4. 

For purposes of this paragraph, an 

Enterprise may set the value of the term 

C in § 1240.36(c)(7)(i) equal to the 

amount of collateral posted by a clearing 

member client of the Enterprise in 

connection with the client-facing 

derivative transactions within the 

netting set; and 

(ii) An Enterprise may choose to 

exclude the PFE of all credit derivatives 

or other similar instruments through 

which it provides credit protection 

when calculating the PFE under 

§ 1240.36(c), provided that it does so 

consistently over time for the 

calculation of the PFE for all such 

instruments; 

(3)(i)(A) The replacement cost of each 

derivative contract or single product 

netting set of derivative contracts to 

which the Enterprise is a counterparty, 

calculated according to the following 

formula, and, for any counterparty that 

is not a commercial end-user, 

multiplied by 1.4: 

Replacement Cost = max{V¥CVMr + 

CVMp; 0} 

Where: 

(1) V equals the fair value for each derivative 

contract or each single-product netting 

set of derivative contracts (including a 

cleared transaction except as provided in 

paragraph (9) of this definition and, at 

the discretion of the Enterprise, 

excluding a forward agreement treated as 

a derivative contract that is part of a 

repurchase or reverse repurchase or a 

securities borrowing or lending 

transaction that qualifies for sales 

treatment under GAAP); 

(2) CVMr equals the amount of cash collateral 

received from a counterparty to a 

derivative contract and that satisfies the 

conditions in paragraphs (3)(ii) through 

(vi) of this definition, or, in the case of 

a client-facing derivative transaction, the 

amount of collateral received from the 

clearing member client; and 

(3) CVMp equals the amount of cash collateral 

that is posted to a counterparty to a 

derivative contract and that has not 

offset the fair value of the derivative 

contract and that satisfies the conditions 

in paragraphs (3)(ii) through (vi) of this 

definition, or, in the case of a clientfacing derivative transaction, the amount 

of collateral posted to the clearing 

member client; 

(B) Notwithstanding paragraph 

(3)(i)(A) of this definition, where 

multiple netting sets are subject to a 

single variation margin agreement, an 

Enterprise must apply the formula for 

replacement cost provided in 

§ 1240.36(c)(10)(i), in which the term 

CMA may only include cash collateral 

that satisfies the conditions in 

paragraphs (3)(ii) through (vi) of this 

definition; and 


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Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 83475 

(C) For purposes of paragraph (3)(i)(A) 

of this definition, an Enterprise must 

treat a derivative contract that 

references an index as if it were 

multiple derivative contracts each 

referencing one component of the index 

if the Enterprise elected to treat the 

derivative contract as multiple 

derivative contracts under 

§ 1240.36(c)(5)(vi); 

(ii) For derivative contracts that are 

not cleared through a QCCP, the cash 

collateral received by the recipient 

counterparty is not segregated (by law, 

regulation, or an agreement with the 

counterparty); 

(iii) Variation margin is calculated 

and transferred on a daily basis based 

on the mark-to-fair value of the 

derivative contract; 

(iv) The variation margin transferred 

under the derivative contract or the 

governing rules of the CCP or QCCP for 

a cleared transaction is the full amount 

that is necessary to fully extinguish the 

net current credit exposure to the 

counterparty of the derivative contracts, 

subject to the threshold and minimum 

transfer amounts applicable to the 

counterparty under the terms of the 

derivative contract or the governing 

rules for a cleared transaction; 

(v) The variation margin is in the form 

of cash in the same currency as the 

currency of settlement set forth in the 

derivative contract, provided that for the 

purposes of this paragraph, currency of 

settlement means any currency for 

settlement specified in the governing 

qualifying master netting agreement and 

the credit support annex to the 

qualifying master netting agreement, or 

in the governing rules for a cleared 

transaction; and 

(vi) The derivative contract and the 

variation margin are governed by a 

qualifying master netting agreement 

between the legal entities that are the 

counterparties to the derivative contract 

or by the governing rules for a cleared 

transaction, and the qualifying master 

netting agreement or the governing rules 

for a cleared transaction must explicitly 

stipulate that the counterparties agree to 

settle any payment obligations on a net 

basis, taking into account any variation 

margin received or provided under the 

contract if a credit event involving 

either counterparty occurs; 

* * * * * 

Backtesting means the comparison of 

an Enterprise’s internal estimates with 

actual outcomes during a sample period 

not used in model development. In this 

context, backtesting is one form of outof-sample testing. 

* * * * * 

Basis derivative contract means a nonforeign-exchange derivative contract 

(i.e., the contract is denominated in a 

single currency) in which the cash flows 

of the derivative contract depend on the 

difference between two risk factors that 

are attributable solely to one of the 

following derivative asset classes: 

Interest rate, credit, equity, or 

commodity. 

* * * * * 

Commercial end-user means an entity 

that: 

(1)(i) Is using derivative contracts to 

hedge or mitigate commercial risk; and 

(ii)(A) Is not an entity described in 

section 2(h)(7)(C)(i)(I) through (VIII) of 

the Commodity Exchange Act (7 U.S.C. 

2(h)(7)(C)(i)(I) through (VIII)); or 

(B) Is not a ‘‘financial entity’’ for 

purposes of section 2(h)(7) of the 

Commodity Exchange Act (7 U.S.C. 

2(h)) by virtue of section 2(h)(7)(C)(iii) 

of the Act (7 U.S.C. 2(h)(7)(C)(iii)); or 

(2)(i) Is using derivative contracts to 

hedge or mitigate commercial risk; and 

(ii) Is not an entity described in 

section 3C(g)(3)(A)(i) through (viii) of 

the Securities Exchange Act of 1934 (15 

U.S.C. 78c–3(g)(3)(A)(i) through (viii)); 

or 

(3) Qualifies for the exemption in 

section 2(h)(7)(A) of the Commodity 

Exchange Act (7 U.S.C. 2(h)(7)(A)) by 

virtue of section 2(h)(7)(D) of the Act (7 

U.S.C. 2(h)(7)(D)); or 

(4) Qualifies for an exemption in 

section 3C(g)(1) of the Securities 

Exchange Act of 1934 (15 U.S.C. 78c– 

3(g)(1)) by virtue of section 3C(g)(4) of 

the Act (15 U.S.C. 78c–3(g)(4)). 

Commingled security means a 

resecuritization of UMBS in which one 

or more of the underlying exposures is 

a UMBS guaranteed by the other 

Enterprise or is a resecuritization of 

UMBS guaranteed by the other 

Enterprise. 

* * * * * 

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. 

* * * * * 

Eligible time-based call means a timebased call that: 

(1) Is exercisable solely at the 

discretion of the originating Enterprise, 

provided the Enterprise obtains FHFA’s 

non-objection prior to exercising the 

time-based call; 

(2) Is not structured to avoid 

allocating credit losses to investors or 

otherwise structured to provide at most 

de minimis credit protection to the 

securitization or credit risk transfer; and 

(3) Is exercisable no less than five 

years after the securitization or credit 

risk transfer issuance date or effective 

date, where the underlying collateral is 

mortgage exposures with amortization 

terms greater than 20 years. 

(4) Is exercisable no less than four 

years after the securitization or credit 

risk transfer issuance date or effective 

date, where the underlying collateral is 

mortgage exposures with amortization 

terms of 20 years or less. 

* * * * * 

Financial collateral * * * 

(2) In which the Enterprise has a 

perfected, first-priority security interest 

or, outside of the United States, the legal 

equivalent thereof, (with the exception 

of cash on deposit; and notwithstanding 

the prior security interest of any 

custodial agent or any priority security 

interest granted to a CCP in connection 

with collateral posted to that CCP). 

* * * * * 

Guarantee asset means the present 

value of a future consideration to be 

received for providing a financial 

guarantee on a portfolio of mortgage 

exposures not recognized on the balance 

sheet. 

Independent collateral means 

financial collateral, other than variation 

margin, that is subject to a collateral 

agreement, or in which an Enterprise 

has a perfected, first-priority security 

interest or, outside of the United States, 

the legal equivalent thereof (with the 

exception of cash on deposit; 

notwithstanding the prior security 

interest of any custodial agent or any 

prior security interest granted to a CCP 

in connection with collateral posted to 

that CCP), and the amount of which 

does not change directly in response to 

the value of the derivative contract or 

contracts that the financial collateral 

secures. 

* * * * * 

Mortgage servicing assets (MSAs) 

means the contractual rights to service 

mortgage loans for a fee. 

* * * * * 

Net independent collateral amount 

means the fair value amount of the 

independent collateral, as adjusted by 

the standard supervisory haircuts under 

§ 1240.39(b)(2)(ii), as applicable, that a 

counterparty to a netting set has posted 

to an Enterprise less the fair value 

amount of the independent collateral, as 


khammond on DSKJM1Z7X2PROD with RULES
83476 Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 

adjusted by the standard supervisory 

haircuts under § 1240.39(b)(2)(ii), as 

applicable, posted by the Enterprise to 

the counterparty, excluding such 

amounts held in a bankruptcy remote 

manner or posted to a QCCP and held 

in conformance with the operational 

requirements in § 1240.3. 

Netting set means a group of 

transactions with a single counterparty 

that are subject to a qualifying master 

netting agreement or a qualifying crossproduct master netting agreement. For 

derivative contracts, netting set also 

includes a single derivative contract 

between an Enterprise and a single 

counterparty. 

* * * * * 

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, 

an Enterprise must comply with the 

requirements of § 1240.3(c) with respect 

to that agreement. 

* * * * * 

Speculative grade means the reference 

entity has adequate capacity to meet 

financial commitments in the near term, 

but is vulnerable to adverse economic 

conditions, such that should economic 

conditions deteriorate, the reference 

entity would present an elevated default 

risk. 

* * * * * 

Standardized total risk-weighted 

assets * * * 

(1) * * * 

(vi) Credit valuation adjustment 

(CVA) risk-weighted assets as calculated 

under § 1240.36(d); 

* * * * * 

(viii) Standardized market riskweighted assets, as calculated under 

§ 1240.204; minus 

* * * * * 

Sub-speculative grade means the 

reference entity depends on favorable 

economic conditions to meet its 

financial commitments, such that 

should such economic conditions 

deteriorate the reference entity likely 

would default on its financial 

commitments. 

* * * * * 

Time-based call means a contractual 

provision that permits an originating 

Enterprise to redeem a securitization 

exposure on or after a specified 

redemption or cancellation date. 

* * * * * 

Uniform Mortgage-backed Security 

(UMBS) means the same as that defined 

in § 1248.1. 

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. 

Variation margin means financial 

collateral that is subject to a collateral 

agreement provided by one party to its 

counterparty to meet the performance of 

the first party’s obligations under one or 

more transactions between the parties as 

a result of a change in value of such 

obligations since the last time such 

financial collateral was provided. 

* * * * * 

Variation margin amount means the 

fair value amount of the variation 

margin, as adjusted by the standard 

supervisory haircuts under 

§ 1240.39(b)(2)(ii), as applicable, that a 

counterparty to a netting set has posted 

to an Enterprise less the fair value 

amount of the variation margin, as 

adjusted by the standard supervisory 

haircuts under § 1240.39(b)(2)(ii), as 

applicable, posted by the Enterprise to 

the counterparty. 

* * * * * 

Volatility derivative contract means a 

derivative contract in which the payoff 

of the derivative contract explicitly 

depends on a measure of the volatility 

of an underlying risk factor to the 

derivative contract. 

* * * * * 

§1240.4 [Amended] 

■ 3. Effective April 1, 2024, amend 

§ 1240.4 in paragraph (c) by removing 

the year ‘‘2025’’ and adding in its place 

the year ‘‘2028’’. 

■ 4. Effective April 1, 2024, amend 

§ 1240.31 by: 

■ a. In paragraph (a)(1)(iv) removing the 

word ‘‘or’’ after the semicolon; 

■ b. In paragraph (a)(1)(v) removing the 

period after ‘‘1240.52’’ and adding ‘‘; or’’ 

in its place; and 

■ c. Adding paragraph (a)(1)(vi). 

The addition reads as follows: 

§ 1240.31 Mechanics for calculating riskweighted assets for general credit risk. 

(a) * * * 

(1) * * * 

(vi) CVA risk-weighted assets subject 

to § 1240.36(d). 

* * * * * 

■ 5. Effective April 1, 2024, amend 

§ 1240.32 by: 

■ a. Redesignating paragraph (c)(2) as 

paragraph (c)(3), adding new paragraph 

(c)(2), and revising redesignated 

paragraph (c)(3); and 

■ b. Redesignating paragraph (i)(5) as 

paragraph (i)(6) and adding new 

paragraph (i)(5). 

The additions and revision read as 

follows: 

§ 1240.32 General risk weights. 

* * * * * 

(c) * * * 

(2) An Enterprise must assign a 5 

percent risk weight to an exposure to 

the other Enterprise in a commingled 

security. 

(3) An Enterprise must assign a 20 

percent risk weight to an exposure to 

another GSE, including an MBS 

guaranteed by the other Enterprise, 

except for exposures under paragraph 

(c)(2) of this section. 

* * * * * 

(i) * * * 

(5) An Enterprise must assign a 20 

percent risk weight to guarantee assets. 

* * * * * 

■ 6. Effective April 1, 2024, amend 

§ 1240.33 in paragraph (a) by: 

■ a. Revising paragraph (ii) in the 

definition of ‘‘Adjusted MTMLTV’’; and 

■ b. Revising table 1 to paragraph (a). 

The revisions read as follows: 

§ 1240.33 Single-family mortgage 

exposures. 

(a) * * * 

Adjusted MTMLTV * * * 

(ii) The amount equal to 1 plus either: 

(A) The single-family countercyclical 

adjustment available at the time of the 

exposure’s origination if the loan age of 

the single-family mortgage exposure is 

less than or equal to 5; or 

(B) The single-family countercyclical 

adjustment available as of that time if 

the loan age of the single-family 

mortgage exposure is greater than or 

equal to 6. 

* * * * * 


khammond on DSKJM1Z7X2PROD with RULES
Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 83477 

TABLE 1 TO PARAGRAPH (a)—PERMISSIBLE VALUES AND ADDITIONAL INSTRUCTIONS

Defined term Permissible values Additional instructions 

Cohort burnout ............ ‘‘No burnout,’’ if the single-family mortgage exposure has not had a 

refinance opportunity since the loan age of the single-family mortgage exposure was 6..

High if unable to determine. 

‘‘Low,’’ if the single-family mortgage exposure has had 12 or fewer 

refinance opportunities since the loan age of the single-family 

mortgage exposure was 6.

‘‘Medium,’’ if the single-family mortgage exposure has had between 

13 and 24 refinance opportunities since the loan age of the singlefamily mortgage exposure was 6.

‘‘High,’’ if the single-family mortgage exposure has had more than 24 

refinance opportunities since the loan age of the single-family 

mortgage exposure was 6.

Coverage percent ........ 0 percent <= coverage percent <= 100 percent .................................. 0 percent if outside of permissible range or unable to determine. 

Days past due ............. Non-negative integer ............................................................................ 210 if negative or unable to determine. 

Debt-to-income (DTI) 

ratio.

0 percent < DTI < 100 percent ............................................................ 42 percent if outside of permissible range or unable to determine. 

Interest-only (IO) ......... Yes, no ................................................................................................. Yes if unable to determine. 

Loan age ..................... 0 <= loan age <= 500 .......................................................................... 500 if outside of permissible range or unable to determine. 

Loan documentation .... None, low, full ....................................................................................... None if unable to determine. 

Loan purpose .............. Purchase, cashout refinance, rate/term refinance ............................... Cashout refinance if unable to determine. 

MTMLTV ...................... 0 percent < MTMLTV <= 300 percent ................................................. If the property securing the single-family mortgage exposure is located in Puerto Rico or the U.S. Virgin Islands, use the FHFA 

House Price Index of the United States. 

If the property securing the single-family mortgage exposure is located in Hawaii, use the FHFA Purchase-only State-level House 

Price Index of Guam. 

If the single-family mortgage exposure was originated before 1991, 

use the Enterprise’s proprietary housing price index. 

Use geometric interpolation to convert quarterly housing price index 

data to monthly data. 

300 percent if outside of permissible range or unable to determine. 

Mortgage concentration 

risk.

High, not high ....................................................................................... High if unable to determine. 

MI cancellation feature Cancellable mortgage insurance, non-cancellable mortgage insurance.Cancellable mortgage insurance, if unable to determine. 

Occupancy type .......... Investment, owner-occupied, second home ........................................ Investment if unable to determine. 

OLTV ........................... 0 percent < OLTV <= 300 percent ....................................................... 300 percent if outside of permissible range or unable to determine. 

Original credit score .... 300 <= original credit score <= 850 ..................................................... If there are credit scores from multiple credit repositories for a borrower, use the following logic to determine a single original credit 

score: 

• If there are credit scores from two repositories, take the lower 

credit score. 

• If there are credit scores from three repositories, use the middle credit score. 

• If there are credit scores from three repositories and two of 

the credit scores are identical, use the identical credit score. 

If there are multiple borrowers, use the following logic to determine a single original credit score: 

• Using the logic above, determine a single credit score for 

each borrower. 

• Select the lowest single credit score across all borrowers. 

The original credit score for the single-family mortgage exposure is 

680 if the Enterprise has verified that no borrower has a credit 

score at any of the three repositories. 

600 if outside of permissible range or unable to determine. 

Origination channel ..... Retail, third-party origination (TPO) ..................................................... TPO includes broker and correspondent channels. TPO if unable to 

determine. 

Payment change from 

modification.

¥80 percent < payment change from modification < 50 percent ....... If the single-family mortgage exposure initially had an adjustable or 

step-rate feature, the monthly payment after a permanent modification is calculated using the initial modified rate. 

0 percent if unable to determine. ¥79 percent if less than or equal 

to ¥80 percent. 

49 percent if greater than or equal to 50 percent. 

Previous maximum 

days past due.

Non-negative integer ............................................................................ 181 months if negative or unable to determine. 

Product type ................ ‘‘FRM30’’ means a fixed-rate single-family mortgage exposure with 

an original amortization term greater than 309 months and less 

than or equal to 429 months.

‘‘FRM20’’ means a fixed-rate single-family mortgage exposure with 

an original amortization term greater than 189 months and less 

than or equal to 309 months.

‘‘FRM15’’ means a fixed-rate single-family mortgage exposure with 

an amortization term less than or equal to 189 months.

‘‘ARM1/1’’ is an adjustable-rate single-family mortgage exposure that 

has a mortgage rate and required payment that adjust annually.

Product types other than FRM30, FRM20, FRM15 or ARM 1/1 

should be assigned to FRM30. 

Use the post-modification product type for modified mortgage exposures. 

ARM 1/1 if unable to determine. 

Property type ............... 1-unit, 2–4 units, condominium, manufactured home .......................... Use condominium for cooperatives. 

2–4 units if unable to determine. 

Refreshed credit score 300 <= refreshed credit score <= 850 ................................................. If there are credit scores from multiple credit repositories for a borrower, use the following logic to determine a single refreshed 

credit score: 


khammond on DSKJM1Z7X2PROD with RULES
83478 Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 

TABLE 1 TO PARAGRAPH (a)—PERMISSIBLE VALUES AND ADDITIONAL INSTRUCTIONS—Continued 

Defined term Permissible values Additional instructions 

• If there are credit scores from two repositories, take the lower 

credit score. 

• If there are credit scores from three repositories, use the middle credit score. 

• If there are credit scores from three repositories and two of 

the credit scores are identical, use the identical credit score. 

If there are multiple borrowers, use the following logic to determine a single Refreshed Credit Score: 

• Using the logic above, determine a single credit score for 

each borrower. 

• Select the lowest single credit score across all borrowers. 

600 if outside of permissible range or unable to determine. 

Streamlined refi ........... Yes, no ................................................................................................. No if unable to determine. 

Subordination .............. 0 percent <= Subordination <= 80 percent .......................................... 80 percent if outside permissible range. 

* * * * * 

■ 7. Effective April 1, 2024, amend 

§ 1240.34 by: 

■ a. Adding in alphabetical order 

definitions for ‘‘Affordable unit’’ and 

‘‘Government subsidy’’ in paragraph (a); 

and 

■ b. Revising table 1 to paragraph (a) 

and table 4 to paragraph (d). 

The additions and revisions read as 

follows: 

§ 1240.34 Multifamily mortgage exposures. 

(a) * * * 

Affordable unit means a unit within a 

property securing a multifamily 

mortgage exposure that can be rented by 

occupants with income less than or 

equal to 80 percent of the area median 

income where the property resides. 

* * * * * 

Government subsidy means that the 

property satisfies both of the following 

criteria: 

(i) At least 20 percent of the 

property’s units are restricted to be 

affordable units per a regulatory 

agreement, recorded use restriction, a 

housing-assistance payments contract, 

or other restrictions codified in loan 

agreements; and 

(ii) The property benefits from one of 

the following government programs: 

(A) Low Income Housing Tax Credits 

(LIHTC); 

(B) Section 8 project-based rental 

assistance; 

(C) Section 515 Rural Rental Housing 

Loans; or 

(D) State/Local affordable housing 

programs that require the provision of 

affordable housing for the life of the 

loan. 

* * * * * 

BILLING CODE 8070–01–P 

Table 1 to Paragraph (a)—Permissible 

Values and Additional Instructions 


khammond on DSKJM1Z7X2PROD with RULES
Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 83479 

* * * * * (d) * * * Table 4 to Paragraph (d)—Multifamily 

Risk Multipliers 


khammond on DSKJM1Z7X2PROD with RULESER30NO23.028</GPH>

Defined Tenn Permissible V ahtes Addimmd IiutnKtimu 

AequisitimaDSCR Greater than or equal to o_ Originatioa DSCR if tll!f¢ive or unable to determine_ If origination DSCR is 

nnavailable,, use tmdemriting DSCR_ Iftmdemriting DSCR is llllll\'ailable use 1.00. 

AapdsitimlLTV Greater than or equal to o_ Originatioa LTV if negative or umib1e tD deteonine.. If or:igiaatioo.LTV is 

nnavailable,, use tmdemriting LTV. If tmdemriting LTV is uoavailab1e, use 

lOOperoeot. 

GGwrnment Sullsidy Yes,no Yes if all: I.east one property securing fl,P fflldtifinnily mortgllge expo sore has a 

govemmentmbsidy. If the mnltifimrily ~ eiqiosore is secured by 

more than ooe property, ca1culate a weighted average govemmmt subsidy 

multiplier per 1be iub:ucti.ons in Table 4 tD Paragraph (d). No otherwise 

Interest-oaly Yes,no. Yes ifUllable to deter:mme. 

LaaaTerm Non-negative intej!Jer-in yems. 11 years if negative orUlllllbletD deteonine.. 

MTMDSCR. Greater than or equal to o_ If the MTMDSCR is :unavailable, the last ooservedDSCR.can be mmb,d to 

mai:ketusing a property NOI index or an NOi eslimam based on rent and 

ezpenseindices.. 

If the i:odex is not mfficimtly gmonlar, eilhei:- because of its frequency or 

geop;nphv, or with respect to a cerlair, mnltifimrily property type, use a more 

geogtaphically broad index or a l'ellelllly eslima1ed mad:-to-madcet value_ 

MnlLTV Greater than or equal to o_ If the MTMI..TV is unawilable, mark tomadretusing an index.. If1be index is 

not sufficieut1y granular, ei~ because of its fulquency or geop;nphv or with 

respect to a certain mnltifumi1y property type, use a more geogiaphicaJly 

broad index or a l'ellelllly estimated mark--m-madrel: value. 

Net Opentinglnoome Greater than or equal to o_ Infer using originatioa LTV or originatioa DSCR ifNOI/NCF is unavailable. 

(NOi} /Net Cam Flow Alrernalively, iafet- using actual MTMl. TV oc actoaJ. MTiidDSCR.. 

(NCF) 

OriginalAmoniDtioa Non-negative integer in years. 31 years if negative or Ulllllble tD deteonine.. 

Tenn 

Original.Lon Size Non-negative dollar w1ue. $3,000,000 if negative oc unable to determine 

Payment Perfmmam:e Perlbn:ning, delinquent 60 days oc Modified if unable to deteanioe. 

more, ~ (withool 

modification), modified. 

Special l'nNhtct Not a special product. student R.ehablvalue-ad if unable to deteanioe. 

~ rebab/value,.addlleas 

suppl-!~ e!!pO!!Ure. 

UPB UPB>$0 $100,000,000 if negalive or unable to deteanioe. 
83480 Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 

BILLING CODE 8070–01–C 

1 If a multifamily mortgage exposure is 

collateralized by multiple properties, 

calculate a weighted average government 

subsidy multiplier by assigning a 0.6 

multiplier to each property with a 

government subsidy and 1.0 multiplier to 

each property without a government subsidy, 

and using the total number of units in a 

property as weights. 

■ 8. Effective April 1, 2024, amend 

§ 1240.35 by revising paragraphs (b)(3) 

and (b)(4)(i) to read as follows: 

§ 1240.35 Off-balance sheet exposures. 

* * * * * 

(b) * * * 

(3) 50 percent CCF. An Enterprise 

must apply a 50 percent CCF to: 


khammond on DSKJM1Z7X2PROD with RULESER30NO23.029</GPH>

Risk:Fador Value or Ranp Risk Multiplier 

Payment Peiformiug LOO 

Performancie Dmlquent more than 60 days LlO 

Re>-performing (withoot modification) LlO 

Modified L20 

Government No LOO 

Subsidyl Yes 0_60 

laterest-Only No LOO 

Yes (during die mtece:st--only pericd) LlO 

Loan Tenn Loantemt <-=lYr 0_70 

lYr < loan. imm <= 2Yr 0_7:S 

2Yr< loan. imm <= 3Yr 0_80 

3Yr< loan.term <=4Yr 0_8:S 

4Yc< loan.term<= :SYr 0_90 ......... 5Yc < loan. term<= 7Yr 0_9:S 

7Yc < loan. term<= lOYr LOO 

Loan temt > lOYr Ll:S 

Original Original amortization temt <.= 20Yr 0-70 

Amortization Tel"III 20Yr < original amortization term<= 25Yr 0_80 

25Yr<original amortization term<= 30Yr LOO 

Original amortization term> 30Yr LlO 

Original Loan Size Loan size<.= $2m L4:S 

(io millions) $2m < loan size<.= $3m L3:S 

$3m < loan size<.= $4m L2:S 

$4m < loan size<.= $Sm Ll:S 

$5m < loan size<.= $6m LOS 

$6m. < loan size<= $7m 1-02 

$7m < loan size<= $Sm 0_96 

$8m < loan size<= $9m 0_92 

$9m < loan size<.= $10m 0_88 

$10m <loan size <-=$Um 0_86 

$Um< loan size<:= $12m 0_84 

$12m < loan size <:= $13m 0_82 

$13m <loan size <:=$15m 0_81 

$15m <loan size <:=$22m 0_80 

$22m < loan size <:= $23m 0_79 

$23m < loan size <:= $24m 0_78 

$24m < loan size<:= $25m 0_76 

Loan size >$2:Sm 0_70 

SpedaJ Products Not a special product LOO 

Student.housing Ll:S 

Rflhablvah»add/lease-up 1..2:S 
Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 83481 

(i) The amount of commitments with 

an original maturity of more than one 

year that are not unconditionally 

cancelable by the Enterprise; and 

(ii) Guarantees on exposures to the 

other Enterprise in commingled 

securities. 

(4) * * * 

(i) Guarantees, except guarantees 

included in paragraph (b)(3)(ii) of this 

section; 

* * * * * 

■ 9. Effective January 1, 2026, revise 

§ 1240.36 to read as follows: 

§ 1240.36 Derivative contracts. 

(a) Exposure amount for derivative 

contracts. An Enterprise must calculate 

the exposure amount or EAD for all its 

derivative contracts using the 

standardized approach for counterparty 

credit risk (SA–CCR) in paragraph (c) of 

this section for purposes of standardized 

total risk-weighted assets. An Enterprise 

must apply the treatment of cleared 

transactions under § 1240.37 to its 

derivative contracts that are cleared 

transactions and to all default fund 

contributions associated with such 

derivative contracts for purposes of 

standardized total risk-weighted assets. 

(b) Methodologies for collateral 

recognition. (1) An Enterprise may use 

the methodologies under § 1240.39 to 

recognize the benefits of financial 

collateral in mitigating the counterparty 

credit risk of repo-style transactions, 

eligible margin loans, collateralized 

OTC derivative contracts and single 

product netting sets of such 

transactions. 

(2) An Enterprise must use the 

methodology in paragraph (c) of this 

section to calculate EAD for an OTC 

derivative contract or a set of OTC 

derivative contracts subject to a 

qualifying master netting agreement. 

(3) An Enterprise must also use the 

methodology in paragraph (d) of this 

section to calculate the risk-weighted 

asset amounts for CVA for OTC 

derivatives. 

(c) EAD for derivative contracts—(1) 

Options for determining EAD. An 

Enterprise must determine the EAD for 

a derivative contract using SA–CCR 

under paragraph (c)(5) of this section. 

The exposure amount determined under 

SA–CCR is the EAD for the derivative 

contract or derivatives contracts. An 

Enterprise must use the same 

methodology to calculate the exposure 

amount for all its derivative contracts. 

An Enterprise may reduce the EAD 

calculated according to paragraph (c)(5) 

of this section by the credit valuation 

adjustment that the Enterprise has 

recognized in its balance sheet valuation 

of any derivative contracts in the netting 

set. For purposes of this paragraph 

(c)(1), the credit valuation adjustment 

does not include any adjustments to 

common equity tier 1 capital 

attributable to changes in the fair value 

of the Enterprise’s liabilities that are due 

to changes in its own credit risk since 

the inception of the transaction with the 

counterparty. 

(2) Definitions. For purposes of this 

paragraph (c), the following definitions 

apply: 

(i) End date means the last date of the 

period referenced by an interest rate or 

credit derivative contract or, if the 

derivative contract references another 

instrument, by the underlying 

instrument, except as otherwise 

provided in this paragraph (c). 

(ii) Start date means the first date of 

the period referenced by an interest rate 

or credit derivative contract or, if the 

derivative contract references the value 

of another instrument, by underlying 

instrument, except as otherwise 

provided in this paragraph (c). 

(iii) Hedging set means: 

(A) With respect to interest rate 

derivative contracts, all such contracts 

within a netting set that reference the 

same reference currency; 

(B) With respect to exchange rate 

derivative contracts, all such contracts 

within a netting set that reference the 

same currency pair; 

(C) With respect to credit derivative 

contracts, all such contracts within a 

netting set; 

(D) With respect to equity derivative 

contracts, all such contracts within a 

netting set; 

(E) With respect to a commodity 

derivative contract, all such contracts 

within a netting set that reference one 

of the following commodity categories: 

Energy, metal, agricultural, or other 

commodities; 

(F) With respect to basis derivative 

contracts, all such contracts within a 

netting set that reference the same pair 

of risk factors and are denominated in 

the same currency; or 

(G) With respect to volatility 

derivative contracts, all such contracts 

within a netting set that reference one 

of interest rate, exchange rate, credit, 

equity, or commodity risk factors, 

separated according to the requirements 

under paragraphs (c)(2)(iii)(A) through 

(E) of this section. 

(H) If the risk of a derivative contract 

materially depends on more than one of 

interest rate, exchange rate, credit, 

equity, or commodity risk factors, FHFA 

may require an Enterprise to include the 

derivative contract in each appropriate 

hedging set under paragraphs 

(c)(2)(iii)(A) through (E) of this section. 

(3) Credit derivatives. 

Notwithstanding paragraphs (c)(1) and 

(2) of this section: 

(i) An Enterprise that purchases a 

credit derivative that is recognized 

under § 1240.38 as a credit risk mitigant 

for an exposure is not required to 

calculate a separate counterparty credit 

risk capital requirement under this 

section so long as the Enterprise does so 

consistently for all such credit 

derivatives and either includes or 

excludes all such credit derivatives that 

are subject to a master netting agreement 

from any measure used to determine 

counterparty credit risk exposure to all 

relevant counterparties for risk-based 

capital purposes. 

(ii) An Enterprise that is the 

protection provider in a credit 

derivative must treat the credit 

derivative as an exposure to the 

reference obligor and is not required to 

calculate a counterparty credit risk 

capital requirement for the credit 

derivative under this section, so long as 

it does so consistently for all such credit 

derivatives and either includes all or 

excludes all such credit derivatives that 

are subject to a master netting agreement 

from any measure used to determine 

counterparty credit risk exposure to all 

relevant counterparties for risk-based 

capital purposes. 

(4) Equity derivatives. An Enterprise 

must treat an equity derivative contract 

as an equity exposure and compute a 

risk-weighted asset amount for the 

equity derivative contract under 

§ 1240.51. In addition, if an Enterprise 

is treating the contract as a covered 

position under subpart F of this part, the 

Enterprise must also calculate a riskbased capital requirement for the 

counterparty credit risk of an equity 

derivative contract under this section. 

(5) Exposure amount. (i) The exposure 

amount of a netting set, as calculated 

under this paragraph (c), is equal to 1.4 

multiplied by the sum of the 

replacement cost of the netting set, as 

calculated under paragraph (c)(6) of this 

section, and the potential future 

exposure of the netting set, as calculated 

under paragraph (c)(7) of this section. 

(ii) Notwithstanding the requirements 

of paragraph (c)(5)(i) of this section, the 

exposure amount of a netting set subject 

to a variation margin agreement, 

excluding a netting set that is subject to 

a variation margin agreement under 

which the counterparty to the variation 

margin agreement is not required to post 

variation margin, is equal to the lesser 

of the exposure amount of the netting 

set calculated under paragraph (c)(5)(i) 

of this section and the exposure amount 

of the netting set calculated under 

paragraph (c)(5)(i) as if the netting set 


khammond on DSKJM1Z7X2PROD with RULES
83482 Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 

were not subject to a variation margin 

agreement. 

(iii) Notwithstanding the 

requirements of paragraph (c)(5)(i) of 

this section, the exposure amount of a 

netting set that consists of only sold 

options in which the premiums have 

been fully paid by the counterparty to 

the options and where the options are 

not subject to a variation margin 

agreement is zero. 

(iv) Notwithstanding the requirements 

of paragraph (c)(5)(i) of this section, the 

exposure amount of a netting set in 

which the counterparty is a commercial 

end-user is equal to the sum of 

replacement cost, as calculated under 

paragraph (c)(6) of this section, and the 

potential future exposure of the netting 

set, as calculated under paragraph (c)(7) 

of this section. 

(v) For purposes of the exposure 

amount calculated under paragraph 

(c)(5)(i) of this section and all 

calculations that are part of that 

exposure amount, an Enterprise may 

elect to treat a derivative contract that 

is a cleared transaction that is not 

subject to a variation margin agreement 

as one that is subject to a variation 

margin agreement, if the derivative 

contract is subject to a requirement that 

the counterparties make daily cash 

payments to each other to account for 

changes in the fair value of the 

derivative contract and to reduce the net 

position of the contract to zero. If an 

Enterprise makes an election under this 

paragraph (c)(5)(v) for one derivative 

contract, it must treat all other 

derivative contracts within the same 

netting set that are eligible for an 

election under this paragraph (c)(5)(v) as 

derivative contracts that are subject to a 

variation margin agreement. 

(vi) For purposes of the exposure 

amount calculated under paragraph 

(c)(5)(i) of this section and all 

calculations that are part of that 

exposure amount, an Enterprise may 

elect to treat a credit derivative contract, 

equity derivative contract, or 

commodity derivative contract that 

references an index as if it were 

multiple derivative contracts each 

referencing one component of the index. 

(6) Replacement cost of a netting set— 

(i) Netting set subject to a variation 

margin agreement under which the 

counterparty must post variation 

margin. The replacement cost of a 

netting set subject to a variation margin 

agreement, excluding a netting set that 

is subject to a variation margin 

agreement under which the 

counterparty is not required to post 

variation margin, is the greater of: 

(A) The sum of the fair values (after 

excluding any valuation adjustments) of 

the derivative contracts within the 

netting set less the sum of the net 

independent collateral amount and the 

variation margin amount applicable to 

such derivative contracts; 

(B) The sum of the variation margin 

threshold and the minimum transfer 

amount applicable to the derivative 

contracts within the netting set less the 

net independent collateral amount 

applicable to such derivative contracts; 

or 

(C) Zero. 

(ii) Netting sets not subject to a 

variation margin agreement under 

which the counterparty must post 

variation margin. The replacement cost 

of a netting set that is not subject to a 

variation margin agreement under 

which the counterparty must post 

variation margin to the Enterprise is the 

greater of: 

(A) The sum of the fair values (after 

excluding any valuation adjustments) of 

the derivative contracts within the 

netting set less the sum of the net 

independent collateral amount and 

variation margin amount applicable to 

such derivative contracts; or 

(B) Zero. 

(iii) Multiple netting sets subject to a 

single variation margin agreement. 

Notwithstanding paragraphs (c)(6)(i) 

and (ii) of this section, the replacement 

cost for multiple netting sets subject to 

a single variation margin agreement 

must be calculated according to 

paragraph (c)(10)(i) of this section. 

(iv) Netting set subject to multiple 

variation margin agreements or a hybrid 

netting set. Notwithstanding paragraphs 

(c)(6)(i) and (ii) of this section, the 

replacement cost for a netting set subject 

to multiple variation margin agreements 

or a hybrid netting set must be 

calculated according to paragraph 

(c)(11)(i) of this section. 

(7) Potential future exposure of a 

netting set. The potential future 

exposure of a netting set is the product 

of the PFE multiplier and the aggregated 

amount. 

(i) PFE multiplier. The PFE multiplier 

is calculated according to the following 

formula: 

Where: 

(A) V is the sum of the fair values (after 

excluding any valuation adjustments) of 

the derivative contracts within the 

netting set; 

(B) C is the sum of the net independent 

collateral amount and the variation 

margin amount applicable to the 

derivative contracts within the netting 

set; and 

(C) A is the aggregated amount of the netting 

set. 

(ii) Aggregated amount. The 

aggregated amount is the sum of all 

hedging set amounts, as calculated 

under paragraph (c)(8) of this section, 

within a netting set. 

(iii) Multiple netting sets subject to a 

single variation margin agreement. 

Notwithstanding paragraphs (c)(7)(i) 

and (ii) of this section and when 

calculating the potential future exposure 

for purposes of adjusted total assets, the 

potential future exposure for multiple 

netting sets subject to a single variation 

margin agreement must be calculated 

according to paragraph (c)(10)(ii) of this 

section. 

(iv) Netting set subject to multiple 

variation margin agreements or a hybrid 

netting set. Notwithstanding paragraphs 

(c)(7)(i) and (ii) of this section and when 

calculating the potential future exposure 

for purposes of adjusted total assets, the 

potential future exposure for a netting 

set subject to multiple variation margin 

agreements or a hybrid netting set must 

be calculated according to paragraph 

(c)(11)(ii) of this section. 

(8) Hedging set amount—(i) Interest 

rate derivative contracts. To calculate 

the hedging set amount of an interest 

rate derivative contract hedging set, an 

Enterprise may use either of the 

formulas provided in paragraphs 

(c)(8)(i)(A) and (B) of this section: 

(A) Formula 1 is as follows: 


khammond on DSKJM1Z7X2PROD with RULESER30NO23.030</GPH>

PFE multiplier= min ( 1; 0.05 + 0.95 * e ([;*~)) 
Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 83483 

(B) Formula 2 is as follows: 

Where in paragraphs (c)(8)(i)(A) and (B) of 

this section: 

(1) AddOn TB1 IR is the sum of the adjusted 

derivative contract amounts, as 

calculated under paragraph (c)(9) of this 

section, within the hedging set with an 

end date of less than one year from the 

present date; 

(2) AddOn TB2 IR is the sum of the adjusted 

derivative contract amounts, as 

calculated under paragraph (c)(9) of this 

section, within the hedging set with an 

end date of one to five years from the 

present date; and 

(3) AddOn TB3 IR is the sum of the adjusted 

derivative contract amounts, as 

calculated under paragraph (c)(9) of this 

section, within the hedging set with an 

end date of more than five years from the 

present date. 

(ii) Exchange rate derivative 

contracts. For an exchange rate 

derivative contract hedging set, the 

hedging set amount equals the absolute 

value of the sum of the adjusted 

derivative contract amounts, as 

calculated under paragraph (c)(9) of this 

section, within the hedging set. 

(iii) Credit derivative contracts and 

equity derivative contracts. The hedging 

set amount of a credit derivative 

contract hedging set or equity derivative 

contract hedging set within a netting set 

is calculated according to the following 

formula: 

Where: 

(A) k is each reference entity within the 

hedging set. 

(B) K is the number of reference entities 

within the hedging set. 

(C) AddOn(Refk) equals the sum of the 

adjusted derivative contract amounts, as 

determined under paragraph (c)(9) of this 

section, for all derivative contracts 

within the hedging set that reference 

reference entity k. 

(D) rkPkequals the applicable supervisory 

correlation factor, as provided in table 2 

to paragraph (c)(11)(ii)(B)(2). 

(iv) Commodity derivative contracts. 

The hedging set amount of a commodity 

derivative contract hedging set within a 

netting set is calculated according to the 

following formula: 

Where: 

(A) k is each commodity type within the 

hedging set. 

(B) K is the number of commodity types 

within the hedging set. 

(C) AddOn (Type k) equals the sum of the 

adjusted derivative contract amounts, as 

determined under paragraph (c)(9) of this 

section, for all derivative contracts 

within the hedging set that reference 

commodity type. 

(D) P equals the applicable supervisory 

correlation factor, as provided in table 2 

to paragraph (c)(11)(ii)(B)(2). 

(v) Basis derivative contracts and 

volatility derivative contracts. 

Notwithstanding paragraphs (c)(8)(i) 

through (iv) of this section, an 

Enterprise must calculate a separate 

hedging set amount for each basis 

derivative contract hedging set and each 

volatility derivative contract hedging 

set. An Enterprise must calculate such 

hedging set amounts using one of the 

formulas under paragraphs (c)(8)(i) 

through (iv) that corresponds to the 

primary risk factor of the hedging set 

being calculated. 

(9) Adjusted derivative contract 

amount—(i) Summary. To calculate the 

adjusted derivative contract amount of a 

derivative contract, an Enterprise must 

determine the adjusted notional amount 

of derivative contract, pursuant to 

paragraph (c)(9)(ii) of this section, and 

multiply the adjusted notional amount 

by each of the supervisory delta 

adjustment, pursuant to paragraph 

(c)(9)(iii) of this section, the maturity 

factor, pursuant to paragraph (c)(9)(iv) 

of this section, and the applicable 

supervisory factor, as provided in table 

2 to paragraph (c)(11)(ii)(B)(2). 

(ii) Adjusted notional amount. (A)(1) 

For an interest rate derivative contract 

or a credit derivative contract, the 

adjusted notional amount equals the 

product of the notional amount of the 

derivative contract, as measured in U.S. 

dollars using the exchange rate on the 

date of the calculation, and the 


khammond on DSKJM1Z7X2PROD with RULESER30NO23.031</GPH> ER30NO23.032</GPH> ER30NO23.033</GPH> ER30NO23.034</GPH>

Hedging set amount 

- [(AddOnIR ) 2 + (AddOnIR ) 2 + (AddOnIR ) 2 + 1 4 * AddOnIR - TB1 TB2 TB'3 • TB1 

* Add0nlf82 + 1.4 * Add0nlf82 * AddOnlfm + 0.6 * Add0nlf81 

IR .! * Add0nrn3]2 ; or 

Hedging set amount= IAddOnI,f81 I+ IAddOnI,f82 I+ IAddOnI,f8 3'-

1 

Hedging set amount= [ ( I:a!'' • AddO,(Ref,) )' + I: a,<1 - (p ,)') • ( AddOn(Ref,))' r 
83484 Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 

supervisory duration, as calculated by 

the following formula: 

Where: 

(i) S is the number of business days from the 

present day until the start date of the 

derivative contract, or zero if the start 

date has already passed; and 

(ii) E is the number of business days from the 

present day until the end date of the 

derivative contract. 

(2) For purposes of paragraph 

(c)(9)(ii)(A)(1) of this section: 

(i) For an interest rate derivative 

contract or credit derivative contract 

that is a variable notional swap, the 

notional amount is equal to the timeweighted average of the contractual 

notional amounts of such a swap over 

the remaining life of the swap; and 

(ii) For an interest rate derivative 

contract or a credit derivative contract 

that is a leveraged swap, in which the 

notional amount of all legs of the 

derivative contract are divided by a 

factor and all rates of the derivative 

contract are multiplied by the same 

factor, the notional amount is equal to 

the notional amount of an equivalent 

unleveraged swap. 

(B)(1) For an exchange rate derivative 

contract, the adjusted notional amount 

is the notional amount of the non-U.S. 

denominated currency leg of the 

derivative contract, as measured in U.S. 

dollars using the exchange rate on the 

date of the calculation. If both legs of 

the exchange rate derivative contract are 

denominated in currencies other than 

U.S. dollars, the adjusted notional 

amount of the derivative contract is the 

largest leg of the derivative contract, as 

measured in U.S. dollars using the 

exchange rate on the date of the 

calculation. 

(2) Notwithstanding paragraph 

(c)(9)(ii)(B)(1) of this section, for an 

exchange rate derivative contract with 

multiple exchanges of principal, the 

Enterprise must set the adjusted 

notional amount of the derivative 

contract equal to the notional amount of 

the derivative contract multiplied by the 

number of exchanges of principal under 

the derivative contract. 

(C)(1) For an equity derivative 

contract or a commodity derivative 

contract, the adjusted notional amount 

is the product of the fair value of one 

unit of the reference instrument 

underlying the derivative contract and 

the number of such units referenced by 

the derivative contract. 

(2) Notwithstanding paragraph 

(c)(9)(ii)(C)(1) of this section, when 

calculating the adjusted notional 

amount for an equity derivative contract 

or a commodity derivative contract that 

is a volatility derivative contract, the 

Enterprise must replace the unit price 

with the underlying volatility 

referenced by the volatility derivative 

contract and replace the number of units 

with the notional amount of the 

volatility derivative contract. 

(iii) Supervisory delta adjustments. 

(A) For a derivative contract that is not 

an option contract or collateralized debt 

obligation tranche, the supervisory delta 

adjustment is 1 if the fair value of the 

derivative contract increases when the 

value of the primary risk factor 

increases and ¥1 if the fair value of the 

derivative contract decreases when the 

value of the primary risk factor 

increases. 

(B)(1) For a derivative contract that is 

an option contract, the supervisory delta 

adjustment is determined by the 

following formulas, as applicable: 

Table 1 to Paragraph (c)(9)(iii)(B)(1)— 

Supervisory Delta Adjustment for 

Options Contracts 

(2) As used in the formulas in table 1 

to paragraph (c)(9)(iii)(B)(1): 

(i) Ε is the standard normal 

cumulative distribution function; 

(ii) P equals the current fair value of 

the instrument or risk factor, as 

applicable, underlying the option; 

(iii) K equals the strike price of the 

option; 

(iv) T equals the number of business 

days until the latest contractual exercise 

date of the option; 

(v) l equals zero for all derivative 

contracts except interest rate options for 

the currencies where interest rates have 

negative values. The same value of l 

must be used for all interest rate options 

that are denominated in the same 

currency. To determine the value of l 

for a given currency, an Enterprise must 

find the lowest value L of P and K of 

all interest rate options in a given 

currency that the Enterprise has with all 

counterparties. Then, l is set according 

to this formula: 

l = max{¥L + 0.1%, 0}; and 

(vi) s equals the supervisory option volatility, 

as provided in table 2 to paragraph 

(c)(11)(ii)(B)(2). 


khammond on DSKJM1Z7X2PROD with RULESER30NO23.035</GPH> ER30NO23.036</GPH>

{

e -o.os*(zh) _ e -o.os*(zti) } 

Supervisory duration= max 0.0S , 0.04 

Bought Sold 

Call Options d> (Zn(~! 1) + 0.5 * u2 * T/250) -d>(zn(~!1) + o.5 *U2 *T/250) 

u * .JT /250 u * .JT /250 

Put Options -d> (-ln (~ ! 1) + 0.5 * u2 * T /250) d> (-ln (~ ! 1) + 0.5 * u2 * T/250) 

U*.JT/250 u*.JT/250 
Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 83485 

1 In the case of a first-to-default credit derivative, 

there are no underlying exposures that are 

subordinated to the Enterprise’s exposure. In the 

case of a second-or-subsequent-to-default credit 

derivative, the smallest (n¥1) notional amounts of 

the underlying exposures are subordinated to the 

Enterprise’s exposure. 

(C)(1) For a derivative contract that is 

a collateralized debt obligation tranche, 

the supervisory delta adjustment is 

determined by the following formula: 

(2) As used in the formula in 

paragraph (c)(9)(iii)(C)(1) of this section: 

(i) A is the attachment point, which 

equals the ratio of the notional amounts 

of all underlying exposures that are 

subordinated to the Enterprise’s 

exposure to the total notional amount of 

all underlying exposures, expressed as a 

decimal value between zero and one; 1

(ii) D is the detachment point, which 

equals one minus the ratio of the 

notional amounts of all underlying 

exposures that are senior to the 

Enterprise’s exposure to the total 

notional amount of all underlying 

exposures, expressed as a decimal value 

between zero and one; and 

(iii) The resulting amount is 

designated with a positive sign if the 

collateralized debt obligation tranche 

was purchased by the Enterprise and is 

designated with a negative sign if the 

collateralized debt obligation tranche 

was sold by the Enterprise. 

(iv) Maturity factor. (A)(1) The 

maturity factor of a derivative contract 

that is subject to a variation margin 

agreement, excluding derivative 

contracts that are subject to a variation 

margin agreement under which the 

counterparty is not required to post 

variation margin, is determined by the 

following formula: 

Where Margin Period of Risk (MPOR) refers 

to the period from the most recent 

exchange of collateral covering a netting 

set of derivative contracts with a 

defaulting counterparty until the 

derivative contracts are closed out and 

the resulting market risk is re-hedged. 

(2) Notwithstanding paragraph 

(c)(9)(iv)(A)(1) of this section: 

(i) For a derivative contract that is not 

a client-facing derivative transaction, 

MPOR cannot be less than ten business 

days plus the periodicity of remargining expressed in business days 

minus one business day; 

(ii) For a derivative contract that is a 

client-facing derivative transaction, 

cannot be less than five business days 

plus the periodicity of re-margining 

expressed in business days minus one 

business day; and 

(iii) For a derivative contract that is 

within a netting set that is composed of 

more than 5,000 derivative contracts 

that are not cleared transactions, or a 

netting set that contains one or more 

trades involving illiquid collateral or a 

derivative contract that cannot be easily 

replaced, MPOR cannot be less than 

twenty business days. 

(3) Notwithstanding paragraphs 

(c)(9)(iv)(A)(1) and (2) of this section, for 

a netting set subject to more than two 

outstanding disputes over margin that 

lasted longer than the MPOR over the 

previous two quarters, the applicable 

floor is twice the amount provided in 

paragraphs (c)(9)(iv)(A)(1) and (2) of this 

section. 

(B) The maturity factor of a derivative 

contract that is not subject to a variation 

margin agreement, or derivative 

contracts under which the counterparty 

is not required to post variation margin, 

is determined by the following formula: 

Where M equals the greater of 10 business 

days and the remaining maturity of the 

contract, as measured in business days. 

(C) For purposes of paragraph 

(c)(9)(iv) of this section, if an Enterprise 

has elected pursuant to paragraph 

(c)(5)(v) of this section to treat a 

derivative contract that is a cleared 

transaction that is not subject to a 

variation margin agreement as one that 

is subject to a variation margin 

agreement, the Enterprise must treat the 

derivative contract as subject to a 

variation margin agreement with 

maturity factor as determined according 

to (c)(9)(iv)(A) of this section, and daily 

settlement does not change the end date 

of the period referenced by the 

derivative contract. 

(v) Derivative contract as multiple 

effective derivative contracts. An 

Enterprise must separate a derivative 

contract into separate derivative 

contracts, according to the following 

rules: 

(A) For an option where the 

counterparty pays a predetermined 

amount if the value of the underlying 

asset is above or below the strike price 

and nothing otherwise (binary option), 

the option must be treated as two 

separate options. For purposes of 

paragraph (c)(9)(iii)(B) of this section, a 

binary option with strike K must be 

represented as the combination of one 

bought European option and one sold 

European option of the same type as the 

original option (put or call) with the 

strikes set equal to 0.95 * K and 1.05 * 

K so that the payoff of the binary option 

is reproduced exactly outside the region 

between the two strikes. The absolute 

value of the sum of the adjusted 

derivative contract amounts of the 

bought and sold options is capped at the 

payoff amount of the binary option. 

(B) For a derivative contract that can 

be represented as a combination of 

standard option payoffs (such as collar, 

butterfly spread, calendar spread, 

straddle, and strangle), an Enterprise 

must treat each standard option 

component as a separate derivative 

contract. 

(C) For a derivative contract that 

includes multiple-payment options, 

(such as interest rate caps and floors), an 

Enterprise may represent each payment 

option as a combination of effective 

single-payment options (such as interest 

rate caplets and floorlets). 

(D) An Enterprise may not decompose 

linear derivative contracts (such as 

swaps) into components. 

(10) Multiple netting sets subject to a 

single variation margin agreement—(i) 

Calculating replacement cost. 

Notwithstanding paragraph (c)(6) of this 

section, an Enterprise shall assign a 

single replacement cost to multiple 

netting sets that are subject to a single 

variation margin agreement under 

which the counterparty must post 

variation margin, calculated according 

to the following formula: 

Replacement Cost = max{SNSmax{VNS; 

0}¥max{CMA; 0}; 0} 

+ max{SNSmin{VNS; 0}¥min{CMA; 0}; 

0} 

Where: 

(A) NS is each netting set subject to the 

variation margin agreement MA; 

VNS is the sum of the fair values (after 

excluding any valuation adjustments) of 

the derivative contracts within the 

netting set NS; and 

(B) CMA is the sum of the net independent 

collateral amount and the variation 

margin amount applicable to the 


khammond on DSKJM1Z7X2PROD with RULESER30NO23.037</GPH> ER30NO23.038</GPH> ER30NO23.039</GPH>

15 

Supervisory Delta Adjustment (l + 14 * A) * (1 + 14 * D) 

3 JMPDR Maturity factor = 2 250 

min(M; 250) 

Maturity factor = 250 
83486 Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 

derivative contracts within the netting 

sets subject to the single variation margin 

agreement. 

(ii) Calculating potential future 

exposure. Notwithstanding paragraph 

(c)(5) of this section, an Enterprise shall 

assign a single potential future exposure 

to multiple netting sets that are subject 

to a single variation margin agreement 

under which the counterparty must post 

variation margin equal to the sum of the 

potential future exposure of each such 

netting set, each calculated according to 

paragraph (c)(7) of this section as if such 

nettings sets were not subject to a 

variation margin agreement. 

(11) Netting set subject to multiple 

variation margin agreements or a hybrid 

netting set—(i) Calculating replacement 

cost. To calculate replacement cost for 

either a netting set subject to multiple 

variation margin agreements under 

which the counterparty to each 

variation margin agreement must post 

variation margin, or a netting set 

composed of at least one derivative 

contract subject to variation margin 

agreement under which the 

counterparty must post variation margin 

and at least one derivative contract that 

is not subject to such a variation margin 

agreement, the calculation for 

replacement cost is provided under 

paragraph (c)(6)(i) of this section, except 

that the variation margin threshold 

equals the sum of the variation margin 

thresholds of all variation margin 

agreements within the netting set and 

the minimum transfer amount equals 

the sum of the minimum transfer 

amounts of all the variation margin 

agreements within the netting set. 

(ii) Calculating potential future 

exposure. (A) To calculate potential 

future exposure for a netting set subject 

to multiple variation margin agreements 

under which the counterparty to each 

variation margin agreement must post 

variation margin, or a netting set 

composed of at least one derivative 

contract subject to variation margin 

agreement under which the 

counterparty to the derivative contract 

must post variation margin and at least 

one derivative contract that is not 

subject to such a variation margin 

agreement, an Enterprise must divide 

the netting set into sub-netting sets (as 

described in paragraph (c)(11)(ii)(B) of 

this section) and calculate the 

aggregated amount for each sub-netting 

set. The aggregated amount for the 

netting set is calculated as the sum of 

the aggregated amounts for the subnetting sets. The multiplier is calculated 

for the entire netting set. 

(B) For purposes of paragraph 

(c)(11)(ii)(A) of this section, the netting 

set must be divided into sub-netting sets 

as follows: 

(1) All derivative contracts within the 

netting set that are not subject to a 

variation margin agreement or that are 

subject to a variation margin agreement 

under which the counterparty is not 

required to post variation margin form 

a single sub-netting set. The aggregated 

amount for this sub-netting set is 

calculated as if the netting set is not 

subject to a variation margin agreement. 

(2) All derivative contracts within the 

netting set that are subject to variation 

margin agreements in which the 

counterparty must post variation margin 

and that share the same value of the 

MPOR form a single sub-netting set. The 

aggregated amount for this sub-netting 

set is calculated as if the netting set is 

subject to a variation margin agreement, 

using the MPOR value shared by the 

derivative contracts within the netting 

set. 

TABLE 2 TO PARAGRAPH (c)(11)(ii)(B)(2)—SUPERVISORY OPTION VOLATILITY, SUPERVISORY CORRELATION PARAMETERS, 

AND SUPERVISORY FACTORS FOR DERIVATIVE CONTRACTS

Asset class Category Type 

Supervisory 

option 

volatility 

(percent) 

Supervisory 

correlation 

factor 

(percent) 

Supervisory 

factor 1

(percent) 

Interest rate ...................................... N/A .................................................... N/A ................. 50 N/A 0.50 

Exchange rate .................................. N/A .................................................... N/A ................. 15 N/A 4.0 

Credit, single name .......................... Investment grade .............................. N/A ................. 100 50 0.46 

Speculative grade ............................. N/A ................. 100 50 1.3 

Sub-speculative grade ...................... N/A ................. 100 50 6.0 

Credit, index ..................................... Investment Grade ............................. N/A ................. 80 80 0.38 

Speculative Grade ............................ N/A ................. 80 80 1.06 

Equity, single name .......................... N/A .................................................... N/A ................. 120 50 32 

Equity, index ..................................... N/A .................................................... N/A ................. 75 80 20 

Commodity ........................................ Energy .............................................. Electricity ....... 150 40 40 

Other .............. 70 40 18 

Metals ............................................... N/A ................. 70 40 18 

Agricultural ........................................ N/A ................. 70 40 18 

Other ................................................. N/A ................. 70 40 18 

1The applicable supervisory factor for basis derivative contract hedging sets is equal to one-half of the supervisory factor provided in this table 

2, and the applicable supervisory factor for volatility derivative contract hedging sets is equal to 5 times the supervisory factor provided in this 

table 2. 

(d) Credit valuation adjustment (CVA) 

risk-weighted assets—(1) In general. 

With respect to its OTC derivative 

contracts, an Enterprise must calculate a 

CVA risk-weighted asset amount for its 

portfolio of OTC derivative transactions 

that are subject to the CVA capital 

requirement using the simple CVA 

approach described in paragraph (d)(5) 

of this section. 

(2) [Reserved] 

(3) Recognition of hedges. (i) An 

Enterprise may recognize a single name 

CDS, single name contingent CDS, any 

other equivalent hedging instrument 

that references the counterparty 

directly, and index credit default swaps 

(CDSind) as a CVA hedge under 

paragraph (d)(5)(ii) of this section or 

paragraph (d)(6) of this section, 

provided that the position is managed as 

a CVA hedge in accordance with the 

Enterprise’s hedging policies. 

(ii) An Enterprise shall not recognize 

as a CVA hedge any tranched or nth-todefault credit derivative. 

(4) Total CVA risk-weighted assets. 

Total CVA risk-weighted assets is the 

CVA capital requirement, KCVA, 

calculated for an Enterprise’s entire 

portfolio of OTC derivative 

counterparties that are subject to the 

CVA capital requirement, multiplied by 

12.5. 


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Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 83487 

(5) Simple CVA approach. (i) Under 

the simple CVA approach, the CVA 

capital requirement, KCVA, is calculated 

according to the following formula: 

Where: 

A = Si 0.75 × wi

2 × (Mi × EADi

total¥Mihedge × 

Bi)2

(A) wi = the weight applicable to 

counterparty i under table 3 to paragraph 

(d)(5)(ii); 

(B) Mi = the EAD-weighted average of the 

effective maturity of each netting set 

with counterparty i (where each netting 

set’s effective maturity can be no less 

than one year.) 

(C) EADi

total = the sum of the EAD for all 

netting sets of OTC derivative contracts 

with counterparty i calculated using the 

standardized approach to counterparty 

credit risk described in paragraph (c) of 

this section. When the Enterprise 

calculates EAD under paragraph (c) of 

this section, such EAD may be adjusted 

for purposes of calculating EADi

total by 

multiplying EAD by (1-exp(¥0.05 × Mi))/ 

(0.05 × Mi), where ‘‘exp’’ is the 

exponential function. 

(D) Mi

hedge = the notional weighted average 

maturity of the hedge instrument. 

(E) Bi = the sum of the notional amounts of 

any purchased single name CDS 

referencing counterparty i that is used to 

hedge CVA risk to counterparty i 

multiplied by (1-exp(¥0.05 × Mi

hedge))/ 

(0.05 × Mi

hedge). 

(F) Mind = the maturity of the CDSind or the 

notional weighted average maturity of 

any CDSind purchased to hedge CVA risk 

of counterparty i. 

(G) Bind = the notional amount of one or more 

CDSind purchased to hedge CVA risk for 

counterparty i multiplied by (1- 

exp(¥0.05 × Mind))/(0.05 × Mind) 

(H) wind = the weight applicable to the CDSind

based on the average weight of the 

underlying reference names that 

comprise the index under table 3 to 

paragraph (d)(5)(ii). 

(ii) The Enterprise may treat the 

notional amount of the index 

attributable to a counterparty as a single 

name hedge of counterparty i (Bi,) when 

calculating KCVA, and subtract the 

notional amount of Bi from the notional 

amount of the CDSind. An Enterprise 

must treat the CDSind hedge with the 

notional amount reduced by Bi as a CVA 

hedge. 

TABLE 3 TO PARAGRAPH (d)(5)(ii)— 

ASSIGNMENT OF COUNTERPARTY

WEIGHT

Internal PD 

(in percent) 

Weight wi 

(in percent) 

0.00–0.07 .............................. 0.70 

>0.070–0.15 .......................... 0.80 

>0.15–0.40 ............................ 1.00 

>0.40–2.00 ............................ 2.00 

>2.00–6.00 ............................ 3.00 

>6.00 ..................................... 10.00 

■ 10. Effective January 1, 2026, revise 

§ 1240.37 to read as follows: 

§ 1240.37 Cleared transactions. 

(a) General requirements—(1) 

Clearing member clients. An Enterprise 

that is a clearing member client must 

use the methodologies described in 

paragraph (b) of this section to calculate 

risk-weighted assets for a cleared 

transaction. 

(2) Clearing members. An Enterprise 

that is a clearing member must use the 

methodologies described in paragraph 

(c) of this section to calculate its riskweighted assets for a cleared transaction 

and paragraph (b) of this section to 

calculate its risk-weighted assets for its 

default fund contribution to a CCP. 

(b) Clearing member client 

Enterprises—(1) Risk-weighted assets for 

cleared transactions. (i) To determine 

the risk-weighted asset amount for a 

cleared transaction, an Enterprise that is 

a clearing member client must multiply 

the trade exposure amount for the 

cleared transaction, calculated in 

accordance with paragraph (b)(2) of this 

section, by the risk weight appropriate 

for the cleared transaction, determined 

in accordance with paragraph (b)(3) of 

this section. 

(ii) A clearing member client 

Enterprise’s total risk-weighted assets 

for cleared transactions is the sum of the 

risk-weighted asset amounts for all of its 

cleared transactions. 

(2) Trade exposure amount. (i) For a 

cleared transaction that is a derivative 

contract or a netting set of derivative 

contracts, trade exposure amount equals 

the EAD for the derivative contract or 

netting set of derivative contracts 

calculated using the methodology used 

to calculate EAD for derivative contracts 

set forth in § 1240.36(c), plus the fair 

value of the collateral posted by the 

clearing member client Enterprise and 

held by the CCP or a clearing member 

in a manner that is not bankruptcy 

remote. 

(ii) For a cleared transaction that is a 

repo-style transaction or netting set of 

repo-style transactions, trade exposure 

amount equals the EAD for the repostyle transaction calculated using the 

methodology set forth in § 1240.39(b)(2) 

or (3), plus the fair value of the 

collateral posted by the clearing member 

client Enterprise and held by the CCP or 

a clearing member in a manner that is 

not bankruptcy remote. 

(3) Cleared transaction risk weights. 

(i) For a cleared transaction with a 

QCCP, a clearing member client 

Enterprise must apply a risk weight of: 

(A) 2 percent if the collateral posted 

by the Enterprise to the QCCP or 

clearing member is subject to an 

arrangement that prevents any loss to 

the clearing member client Enterprise 

due to the joint default or a concurrent 

insolvency, liquidation, or receivership 

proceeding of the clearing member and 

any other clearing member clients of the 

clearing member; and the clearing 

member client Enterprise has conducted 

sufficient legal review to conclude with 

a well-founded basis (and maintains 

sufficient written documentation of that 

legal review) that in the event of a legal 

challenge (including one resulting from 

an event of default or from liquidation, 

insolvency, or receivership proceedings) 

the relevant court and administrative 

authorities would find the arrangements 

to be legal, valid, binding, and 

enforceable under the law of the 

relevant jurisdictions. 

(B) 4 percent, if the requirements of 

paragraph (b)(3)(i)(A) of this section are 

not met. 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member client Enterprise must apply 

the risk weight applicable to the CCP 

under this subpart D. 

(4) Collateral. (i) Notwithstanding any 

other requirement of this section, 

collateral posted by a clearing member 

client Enterprise that is held by a 

custodian (in its capacity as a custodian) 

in a manner that is bankruptcy remote 


khammond on DSKJM1Z7X2PROD with RULESER30NO23.040</GPH>

2 

Kev A = 2.33 X (r 0.5 X wi X (Mi X EADtotal - Mihedge X BJ - ? wind X Mind X Bind) + A 

i ind 
83488 Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 

from the CCP, clearing member, and 

other clearing member clients of the 

clearing member, is not subject to a 

capital requirement under this section. 

(ii) A clearing member client 

Enterprise must calculate a riskweighted asset amount for any collateral 

provided to a CCP, clearing member or 

a custodian in connection with a cleared 

transaction in accordance with 

requirements under this subpart D, as 

applicable. 

(c) Clearing member Enterprise—(1) 

Risk-weighted assets for cleared 

transactions. (i) To determine the riskweighted asset amount for a cleared 

transaction, a clearing member 

Enterprise must multiply the trade 

exposure amount for the cleared 

transaction, calculated in accordance 

with paragraph (c)(2) of this section by 

the risk weight appropriate for the 

cleared transaction, determined in 

accordance with paragraph (c)(3) of this 

section. 

(ii) A clearing member Enterprise’s 

total risk-weighted assets for cleared 

transactions is the sum of the riskweighted asset amounts for all of its 

cleared transactions. 

(2) Trade exposure amount. A 

clearing member Enterprise must 

calculate its trade exposure amount for 

a cleared transaction as follows: 

(i) For a cleared transaction that is a 

derivative contract or a netting set of 

derivative contracts, trade exposure 

amount equals the EAD calculated using 

the methodology used to calculate EAD 

for derivative contracts set forth in 

§ 1240.36(c), plus the fair value of the 

collateral posted by the clearing member 

Enterprise and held by the CCP in a 

manner that is not bankruptcy remote. 

(ii) For a cleared transaction that is a 

repo-style transaction or netting set of 

repo-style transactions, trade exposure 

amount equals the EAD calculated 

under § 1240.39(b)(2) or (3), plus the fair 

value of the collateral posted by the 

clearing member Enterprise and held by 

the CCP in a manner that is not 

bankruptcy remote. 

(3) Cleared transaction risk weights. 

(i) A clearing member Enterprise must 

apply a risk weight of 2 percent to the 

trade exposure amount for a cleared 

transaction with a QCCP. 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member Enterprise must apply the risk 

weight applicable to the CCP according 

to this subpart D. 

(iii) Notwithstanding paragraphs 

(c)(3)(i) and (ii) of this section, a 

clearing member Enterprise may apply a 

risk weight of zero percent to the trade 

exposure amount for a cleared 

transaction with a QCCP where the 

clearing member Enterprise is acting as 

a financial intermediary on behalf of a 

clearing member client, the transaction 

offsets another transaction that satisfies 

the requirements set forth in § 1240.3(a), 

and the clearing member Enterprise is 

not obligated to reimburse the clearing 

member client in the event of the QCCP 

default. 

(4) Collateral. (i) Notwithstanding any 

other requirement of this section, 

collateral posted by a clearing member 

Enterprise that is held by a custodian (in 

its capacity as a custodian) in a manner 

that is bankruptcy remote from the CCP, 

clearing member, and other clearing 

member clients of the clearing member, 

is not subject to a capital requirement 

under this section. 

(ii) A clearing member Enterprise 

must calculate a risk-weighted asset 

amount for any collateral provided to a 

CCP, clearing member or a custodian in 

connection with a cleared transaction in 

accordance with requirements under 

this subpart D. 

(d) Default fund contributions—(1) 

General requirement. A clearing 

member Enterprise must determine the 

risk-weighted asset amount for a default 

fund contribution to a CCP at least 

quarterly, or more frequently if, in the 

opinion of the Enterprise or FHFA, there 

is a material change in the financial 

condition of the CCP. 

(2) Risk-weighted asset amount for 

default fund contributions to 

nonqualifying CCPs. A clearing member 

Enterprise’s risk-weighted asset amount 

for default fund contributions to CCPs 

that are not QCCPs equals the sum of 

such default fund contributions 

multiplied by 1,250 percent, or an 

amount determined by FHFA, based on 

factors such as size, structure, and 

membership characteristics of the CCP 

and riskiness of its transactions, in cases 

where such default fund contributions 

may be unlimited. 

(3) Risk-weighted asset amount for 

default fund contributions to QCCPs. A 

clearing member Enterprise’s riskweighted asset amount for default fund 

contributions to QCCPs equals the sum 

of its capital requirement, KCM for each 

QCCP, as calculated under the 

methodology set forth in paragraph 

(d)(4) of this section, multiplied by 12.5. 

(4) Capital requirement for default 

fund contributions to a QCCP. A 

clearing member Enterprise’s capital 

requirement for its default fund 

contribution to a QCCP (KCM) is equal 

to: 

Where: 

(i) KCCP is the hypothetical capital 

requirement of the QCCP, as determined 

under paragraph (d)(5) of this section; 

(ii) DFpref is prefunded default fund 

contribution of the clearing member 

Enterprise to the QCCP; 

(iii) DFCCP is the QCCP’s own prefunded 

amount that are contributed to the 

default waterfall and are junior or pari 

passu with prefunded default fund 

contributions of clearing members of the 

QCCP; and 

(iv) DFCCPCMpref is the total prefunded default 

fund contributions from clearing 

members of the QCCP to the QCCP. 

(5) Hypothetical capital requirement 

of a QCCP. Where a QCCP has provided 

its KCCP, an Enterprise must rely on 

such disclosed figure instead of 

calculating KCCP under this paragraph 

(d)(5), unless the Enterprise determines 

that a more conservative figure is 

appropriate based on the nature, 

structure, or characteristics of the QCCP. 

The hypothetical capital requirement of 

a QCCP (KCCP), as determined by the 

Enterprise, is equal to: 

Where: 

(i) CMi is each clearing member of the QCCP; 

and 

(ii) EADi is the exposure amount of the QCCP 

to each clearing member of the QCCP, as 

determined under paragraph (d)(6) of 

this section. 

(6) EAD of a QCCP to a clearing 

member. (i) The EAD of a QCCP to a 

clearing member is equal to the sum of 

the EAD for derivative contracts 

determined under paragraph (d)(6)(ii) of 

this section and the EAD for repo-style 

transactions determined under 

paragraph (d)(6)(iii) of this section. 


khammond on DSKJM1Z7X2PROD with RULESER30NO23.041</GPH> ER30NO23.042</GPH>

l ( DFpref ) l 

KcM = max KcCP * pref ; 0.16 percent* DFpref 

DFcCP + DFCCPCM 

KccP = L EADi * 1.6 percent 

CM; 
Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 83489 

(ii) With respect to any derivative 

contracts between the QCCP and the 

clearing member that are cleared 

transactions and any guarantees that the 

clearing member has provided to the 

QCCP with respect to performance of a 

clearing member client on a derivative 

contract, the EAD is equal to the 

exposure amount of the QCCP to the 

clearing member for all such derivative 

contracts and guarantees of derivative 

contracts calculated under SA–CCR in 

§ 1240.36(c) (or, with respect to a QCCP 

located outside the United States, under 

a substantially identical methodology in 

effect in the jurisdiction) using a value 

of 10 business days for purposes of 

§ 1240.36(c)(9)(iv); less the value of all 

collateral held by the QCCP posted by 

the clearing member or a client of the 

clearing member in connection with a 

derivative contract for which the 

clearing member has provided a 

guarantee to the QCCP and the amount 

of the prefunded default fund 

contribution of the clearing member to 

the QCCP. 

(iii) With respect to any repo-style 

transactions between the QCCP and a 

clearing member that are cleared 

transactions, EAD is equal to: 

EADi = max{EBRMi¥IMi¥DFi;0} 

Where: 

(A) EBRMi is the exposure amount of the 

QCCP to each clearing member for all 

repo-style transactions between the 

QCCP and the clearing member, as 

determined under § 1240.39(b)(2) and 

without recognition of the initial margin 

collateral posted by the clearing member 

to the QCCP with respect to the repostyle transactions or the prefunded 

default fund contribution of the clearing 

member institution to the QCCP; 

(B) IMi is the initial margin collateral posted 

by each clearing member to the QCCP 

with respect to the repo-style 

transactions; and 

(C) DFi is the prefunded default fund 

contribution of each clearing member to 

the 

(D) QCCP that is not already deducted in 

paragraph (d)(6)(ii) of this section. 

(iv) EAD must be calculated 

separately for each clearing member’s 

sub-client accounts and sub-house 

account (i.e., for the clearing member’s 

proprietary activities). If the clearing 

member’s collateral and its client’s 

collateral are held in the same default 

fund contribution account, then the 

EAD of that account is the sum of the 

EAD for the client-related transactions 

within the account and the EAD of the 

house-related transactions within the 

account. For purposes of determining 

such EADs, the independent collateral 

of the clearing member and its client 

must be allocated in proportion to the 

respective total amount of independent 

collateral posted by the clearing member 

to the QCCP. 

(v) If any account or sub-account 

contains both derivative contracts and 

repo-style transactions, the EAD of that 

account is the sum of the EAD for the 

derivative contracts within the account 

and the EAD of the repo-style 

transactions within the account. If 

independent collateral is held for an 

account containing both derivative 

contracts and repo-style transactions, 

then such collateral must be allocated to 

the derivative contracts and repo-style 

transactions in proportion to the 

respective product specific exposure 

amounts, calculated, excluding the 

effects of collateral, according to 

§ 1240.39(b) for repo-style transactions 

and to § 1240.36(c)(5) for derivative 

contracts. 

■ 11. Effective January 1, 2026, revise 

§ 1240.39 to read as follows: 

§ 1240.39 Collateralized transactions. 

(a) General. (1) An Enterprise may use 

the following methodologies to 

recognize the benefits of financial 

collateral (other than with respect to a 

retained CRT exposure) in mitigating 

the counterparty credit risk of repo-style 

transactions, eligible margin loans, 

collateralized OTC derivative contracts 

and single product netting sets of such 

transactions: 

(i) The collateral haircut approach set 

forth in paragraph (b)(2) of this section; 

and 

(ii) For single product netting sets of 

repo-style transactions and eligible 

margin loans, the simple VaR 

methodology set forth in paragraph 

(b)(3) of this section. 

(2) An Enterprise may use any 

combination of the two methodologies 

for collateral recognition; however, it 

must use the same methodology for 

similar exposures or transactions. 

(b) EAD for eligible margin loans and 

repo-style transactions—(1) General. An 

Enterprise may recognize the credit risk 

mitigation benefits of financial collateral 

that secures an eligible margin loan, 

repo-style transaction, or single-product 

netting set of such transactions by 

determining the EAD of the exposure 

using: 

(i) The collateral haircut approach 

described in paragraph (b)(2) of this 

section; or 

(ii) For netting sets only, the simple 

VaR methodology described in 

paragraph (b)(3) of this section. 

(2) Collateral haircut approach—(i) 

EAD equation. An Enterprise may 

determine EAD for an eligible margin 

loan, repo-style transaction, or netting 

set by setting EAD equal to 

max{0, [(SE¥SC) + S(Es × Hs) + S(Efx × 

Hfx)]}, 

Where: 

(A) SE equals the value of the exposure (the 

sum of the current fair values of all 

instruments, gold, and cash the 

Enterprise has lent, sold subject to 

repurchase, or posted as collateral to the 

counterparty under the transaction (or 

netting set)); 

(B) SC equals the value of the collateral (the 

sum of the current fair values of all 

instruments, gold, and cash the 

Enterprise has borrowed, purchased 

subject to resale, or taken as collateral 

from the counterparty under the 

transaction (or netting set)); 

(C) Es equals the absolute value of the net 

position in a given instrument or in gold 

(where the net position in a given 

instrument or in gold equals the sum of 

the current fair values of the instrument 

or gold the Enterprise has lent, sold 

subject to repurchase, or posted as 

collateral to the counterparty minus the 

sum of the current fair values of that 

same instrument or gold the Enterprise 

has borrowed, purchased subject to 

resale, or taken as collateral from the 

counterparty); 

(D) Hs equals the market price volatility 

haircut appropriate to the instrument or 

gold referenced in Es; 

(E) Efx equals the absolute value of the net 

position of instruments and cash in a 

currency that is different from the 

settlement currency (where the net 

position in a given currency equals the 

sum of the current fair values of any 

instruments or cash in the currency the 

Enterprise has lent, sold subject to 

repurchase, or posted as collateral to the 

counterparty minus the sum of the 

current fair values of any instruments or 

cash in the currency the Enterprise has 

borrowed, purchased subject to resale, or 

taken as collateral from the 

counterparty); and 

(F) Hfx equals the haircut appropriate to the 

mismatch between the currency 

referenced in Efx and the settlement 

currency. 

(ii) Standard supervisory haircuts. 

Under the standard supervisory haircuts 

approach: 

(A) An Enterprise must use the 

haircuts for market price volatility (Hs) 

in table 1 to paragraph (b)(2)(ii)(A) as 

adjusted in certain circumstances as 

provided in paragraphs (b)(2)(ii)(C) and 

(D) of this section; 


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83490 Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 

TABLE 1 TO PARAGRAPH (b)(2)(ii)(A)—STANDARD SUPERVISORY MARKET PRICE VOLATILITY HAIRCUTS 1

Residual maturity 

Haircut (in percent) assigned based on: 

Investment grade 

securitization 

exposures 

(in percent) 

Sovereign issuers risk weight 

under § 1240.32 2

(in percent) 

Non-sovereign issuers risk weight 

under § 1240.32 

(in percent) 

Zero 20 or 50 100 20 50 100 

Less than or equal to 1 year ................................................................ 0.5 1.0 15.0 1.0 2.0 4.0 4.0 

Greater than 1 year and less than or equal to 5 years ....................... 2.0 3.0 15.0 4.0 6.0 8.0 12.0 

Greater than 5 years ............................................................................ 4.0 6.0 15.0 8.0 12.0 16.0 24.0

Main index equities (including convertible bonds) and gold ............................................................................ 15.0 

Other publicly traded equities (including convertible bonds) ........................................................................... 25.0 

Mutual funds ..................................................................................................................................................... Highest haircut applicable to any security in which the 

fund can invest. 

Cash collateral held .......................................................................................................................................... Zero. 

Other exposure types ....................................................................................................................................... 25.0 

1The market price volatility haircuts in table 1 are based on a 10 business-day holding period. 

2 Includes a foreign PSE that receives a zero percent risk weight. 

(B) For currency mismatches, an 

Enterprise must use a haircut for foreign 

exchange rate volatility (Hfx) of 8 

percent, as adjusted in certain 

circumstances as provided in 

paragraphs (b)(2)(ii)(C) and (D) of this 

section. 

(C) For repo-style transactions and 

client-facing derivative transactions, an 

Enterprise may multiply the supervisory 

haircuts provided in paragraphs 

(b)(2)(ii)(A) and (B) of this section by the 

square root of 1⁄2 (which equals 

0.707107). If the Enterprise determines 

that a longer holding period is 

appropriate for client-facing derivative 

transactions, then it must use a larger 

scaling factor to adjust for the longer 

holding period pursuant to paragraph 

(b)(2)(ii)(F) of this section. 

(D) An Enterprise must adjust the 

supervisory haircuts upward on the 

basis of a holding period longer than ten 

business days (for eligible margin loans) 

or five business days (for repo-style 

transactions), using the formula 

provided in paragraph (b)(2)(ii)(F) of 

this section where the conditions in this 

paragraph (b)(2)(ii)(D) apply. If the 

number of trades in a netting set 

exceeds 5,000 at any time during a 

quarter, an Enterprise must adjust the 

supervisory haircuts upward on the 

basis of a minimum holding period of 

twenty business days for the following 

quarter (except when an Enterprise is 

calculating EAD for a cleared 

transaction under § 1240.37). If a netting 

set contains one or more trades 

involving illiquid collateral, an 

Enterprise must adjust the supervisory 

haircuts upward on the basis of a 

minimum holding period of twenty 

business days. If over the two previous 

quarters more than two margin disputes 

on a netting set have occurred that 

lasted longer than the holding period, 

then the Enterprise must adjust the 

supervisory haircuts upward for that 

netting set on the basis of a minimum 

holding period that is at least two times 

the minimum holding period for that 

netting set. 

(E)(1) An Enterprise must adjust the 

supervisory haircuts upward on the 

basis of a holding period longer than ten 

business days for collateral associated 

with derivative contracts (five business 

days for client-facing derivative 

contracts) using the formula provided in 

paragraph (b)(2)(ii)(F) of this section 

where the conditions in this paragraph 

(b)(2)(ii)(E)(1) apply. For collateral 

associated with a derivative contract 

that is within a netting set that is 

composed of more than 5,000 derivative 

contracts that are not cleared 

transactions, an Enterprise must use a 

minimum holding period of twenty 

business days. If a netting set contains 

one or more trades involving illiquid 

collateral or a derivative contract that 

cannot be easily replaced, an Enterprise 

must use a minimum holding period of 

twenty business days. 

(2) Notwithstanding paragraph 

(b)(2)(ii)(A) or (C) or (b)(2)(ii)(E)(1) of 

this section, for collateral associated 

with a derivative contract in a netting 

set under which more than two margin 

disputes that lasted longer than the 

holding period occurred during the two 

previous quarters, the minimum holding 

period is twice the amount provided 

under paragraph (b)(2)(ii)(A) or (C) or 

(b)(2)(ii)(E)(1). 

(F) An Enterprise must adjust the 

standard supervisory haircuts upward, 

pursuant to the adjustments provided in 

paragraphs (b)(2)(ii)(C) through (E) of 

this section, using the following 

formula: 

Where: 

(1) TM equals a holding period of longer than 

10 business days for eligible margin 

loans and derivative contracts other than 

client-facing derivative transactions or 

longer than 5 business days for repostyle transactions and client-facing 

derivative transactions; Hs equals the 

standard supervisory haircut; and 

(2) Ts equals 10 business days for eligible 

margin loans and derivative contracts 

other than client-facing derivative 

transactions or 5 business days for repostyle transactions and client-facing 

derivative transactions. 

(G) If the instrument an Enterprise has 

lent, sold subject to repurchase, or 

posted as collateral does not meet the 

definition of financial collateral, the 

Enterprise must use a 25.0 percent 

haircut for market price volatility (Hs). 

(iii) Own internal estimates for 

haircuts. With the prior written notice 

to FHFA, an Enterprise may calculate 

haircuts (Hs and Hfx) using its own 

internal estimates of the volatilities of 

market prices and foreign exchange 

rates. 

(A) To use its own internal estimates, 

an Enterprise must satisfy the following 

minimum quantitative standards: 

(1) An Enterprise must use a 99th 

percentile one-tailed confidence 

interval. 

(2) The minimum holding period for 

a repo-style transaction is five business 

days and for an eligible margin loan is 

ten business days except for 

transactions or netting sets for which 

paragraph (b)(2)(iii)(A)(3) of this section 

applies. When an Enterprise calculates 

an own-estimates haircut on a TN-day 

holding period, which is different from 


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Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 83491 

the minimum holding period for the 

transaction type, the applicable haircut 

(HM) is calculated using the following 

square root of time formula: 

Where: 

(i) TM equals 5 for repo-style transactions and 

10 for eligible margin loans; 

(ii) TN equals the holding period used by the 

Enterprise to derive HN; and 

(iii) HN equals the haircut based on the 

holding period TN

(3) If the number of trades in a netting 

set exceeds 5,000 at any time during a 

quarter, an Enterprise must calculate the 

haircut using a minimum holding 

period of twenty business days for the 

following quarter (except when an 

Enterprise is calculating EAD for a 

cleared transaction under § 1240.37). If 

a netting set contains one or more trades 

involving illiquid collateral or an OTC 

derivative that cannot be easily 

replaced, an Enterprise must calculate 

the haircut using a minimum holding 

period of twenty business days. If over 

the two previous quarters more than two 

margin disputes on a netting set have 

occurred that lasted more than the 

holding period, then the Enterprise 

must calculate the haircut for 

transactions in that netting set on the 

basis of a holding period that is at least 

two times the minimum holding period 

for that netting set. 

(4) An Enterprise is required to 

calculate its own internal estimates with 

inputs calibrated to historical data from 

a continuous 12-month period that 

reflects a period of significant financial 

stress appropriate to the security or 

category of securities. 

(5) An Enterprise must have policies 

and procedures that describe how it 

determines the period of significant 

financial stress used to calculate the 

Enterprise’s own internal estimates for 

haircuts under this section and must be 

able to provide empirical support for the 

period used. The Enterprise must obtain 

the prior approval of FHFA for, and 

notify FHFA if the Enterprise makes any 

material changes to, these policies and 

procedures. 

(6) Nothing in this section prevents 

FHFA from requiring an Enterprise to 

use a different period of significant 

financial stress in the calculation of own 

internal estimates for haircuts. 

(7) An Enterprise must update its data 

sets and calculate haircuts no less 

frequently than quarterly and must also 

reassess data sets and haircuts whenever 

market prices change materially. 

(B) With respect to debt securities that 

are investment grade, an Enterprise may 

calculate haircuts for categories of 

securities. For a category of securities, 

the Enterprise must calculate the haircut 

on the basis of internal volatility 

estimates for securities in that category 

that are representative of the securities 

in that category that the Enterprise has 

lent, sold subject to repurchase, posted 

as collateral, borrowed, purchased 

subject to resale, or taken as collateral. 

In determining relevant categories, the 

Enterprise must at a minimum take into 

account: 

(1) The type of issuer of the security; 

(2) The credit quality of the security; 

(3) The maturity of the security; and 

(4) The interest rate sensitivity of the 

security. 

(C) With respect to debt securities that 

are not investment grade and equity 

securities, an Enterprise must calculate 

a separate haircut for each individual 

security. 

(D) Where an exposure or collateral 

(whether in the form of cash or 

securities) is denominated in a currency 

that differs from the settlement 

currency, the Enterprise must calculate 

a separate currency mismatch haircut 

for its net position in each mismatched 

currency based on estimated volatilities 

of foreign exchange rates between the 

mismatched currency and the 

settlement currency. 

(E) An Enterprise’s own estimates of 

market price and foreign exchange rate 

volatilities may not take into account 

the correlations among securities and 

foreign exchange rates on either the 

exposure or collateral side of a 

transaction (or netting set) or the 

correlations among securities and 

foreign exchange rates between the 

exposure and collateral sides of the 

transaction (or netting set). 

(3) Simple VaR methodology. With 

the prior written notice to FHFA, an 

Enterprise may estimate EAD for a 

netting set using a VaR model that meets 

the requirements in paragraph (b)(3)(iii) 

of this section. In such event, the 

Enterprise must set EAD equal to max 

{0, [(SE¥SC) + PFE]}, where: 

(i) SE equals the value of the exposure 

(the sum of the current fair values of all 

instruments, gold, and cash the 

Enterprise has lent, sold subject to 

repurchase, or posted as collateral to the 

counterparty under the netting set); 

(ii) SC equals the value of the 

collateral (the sum of the current fair 

values of all instruments, gold, and cash 

the Enterprise has borrowed, purchased 

subject to resale, or taken as collateral 

from the counterparty under the netting 

set); and 

(iii) PFE (potential future exposure) 

equals the Enterprise’s empirically 

based best estimate of the 99th 

percentile, one-tailed confidence 

interval for an increase in the value of 

(SE¥SC) over a five-business-day 

holding period for repo-style 

transactions, or over a ten-business-day 

holding period for eligible margin loans 

except for netting sets for which 

paragraph (b)(3)(iv) of this section 

applies using a minimum one-year 

historical observation period of price 

data representing the instruments that 

the Enterprise has lent, sold subject to 

repurchase, posted as collateral, 

borrowed, purchased subject to resale, 

or taken as collateral. The Enterprise 

must validate its VaR model by 

establishing and maintaining a rigorous 

and regular backtesting regime. 

(iv) If the number of trades in a 

netting set exceeds 5,000 at any time 

during a quarter, an Enterprise must use 

a twenty-business-day holding period 

for the following quarter (except when 

an Enterprise is calculating EAD for a 

cleared transaction under § 1240.37). If 

a netting set contains one or more trades 

involving illiquid collateral, an 

Enterprise must use a twenty-businessday holding period. If over the two 

previous quarters more than two margin 

disputes on a netting set have occurred 

that lasted more than the holding 

period, then the Enterprise must set its 

PFE for that netting set equal to an 

estimate over a holding period that is at 

least two times the minimum holding 

period for that netting set. 

■ 12. Effective April 1, 2024, amend 

§ 1240.41 by revising paragraph (c)(5), 

redesignating paragraph (c)(6) as 

paragraph (c)(7), and adding new 

paragraph (c)(6). 

The revision and addition read as 

follows: 

§ 1240.41 Operational requirements for 

CRT and other securitization exposures. 

* * * * * 

(c) * * * 

(5) Any clean-up calls relating to the 

credit risk transfer are eligible clean-up 

calls; 

(6) Any time-based calls relating to 

the credit risk transfer are eligible timebased calls; and 

* * * * * 

■ 13. Effective April 1, 2024, amend 

§ 1240.42 by revising paragraph (f) to 

read as follows. 

§ 1240.42 Risk-weighted assets for CRT 

and other securitization exposures. 

* * * * * 

(f) Interest-only mortgage-backed 

securities. For non-credit-enhancing 

interest-only mortgage-backed securities 


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83492 Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Rules and Regulations 

that are not subject to § 1240.32(c), the 

risk weight may not be less than 100 

percent. 

* * * * * 

■ 14. Effective April 1, 2024, amend 

§ 1240.400 by revising paragraph (c)(1) 

and removing paragraph (d). 

The revision reads as follows: 

§ 1240.400 Stability capital buffer. 

* * * * * 

(c) * * * 

(1) Increase in stability capital buffer. 

An increase in the stability capital 

buffer of an Enterprise under this 

section will take effect (i.e., be 

incorporated into the maximum payout 

ratio under table 1 to paragraph (b)(5) in 

§ 1240.11) on January 1 of the year that 

is one full calendar year after the 

increased stability capital buffer was 

calculated, provided that where a 

stability capital buffer under paragraph 

(c)(2) of this section is calculated to be 

a decrease in the stability capital buffer 

from the previously calculated 

scheduled increase applicable on the 

same January 1, the decreased stability 

capital buffer under paragraph (c)(2) 

shall take effect. 

* * * * * 

Sandra L. Thompson, 

Director, Federal Housing Finance Agency. 

[FR Doc. 2023–26078 Filed 11–29–23; 8:45 am] 

BILLING CODE 8070–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2023–1888; Project 

Identifier MCAI–2023–00298–E; Amendment 

39–22615; AD 2023–23–13] 

RIN 2120–AA64 

Airworthiness Directives; Rolls-Royce 

Deutschland Ltd & Co KG Engines 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: The FAA is adopting a new 

airworthiness directive (AD) for all 

Rolls-Royce Deutschland Ltd & Co KG 

(RRD) Model RB211–Trent 800 engines. 

This AD is prompted by reports of 

cracks on certain intermediate-pressure 

compressor (IPC) rotor shaft balance 

lands. This AD requires initial and 

repetitive on-wing or in-shop borescope 

inspections (BSIs) of certain IPC rotor 

shaft balance lands for cracks, dents, 

and nicks, and replacement of the IPC 

rotor shaft if necessary, and would 

prohibit the installation of a certain IPC 

rotor shaft on any engine, as specified 

in a European Union Aviation Safety 

Agency (EASA) AD, which is 

incorporated by reference (IBR). The 

FAA is issuing this AD to address the 

unsafe condition on these products. 

DATES: This AD is effective January 4, 

2024. 

The Director of the Federal Register 

approved the incorporation by reference 

of a certain publication listed in this AD 

as of January 4, 2024. 

ADDRESSES: 

AD Docket: You may examine the AD 

docket at regulations.gov under Docket 

No. FAA–2023–1888; or in person at 

Docket Operations between 9 a.m. and 

5 p.m., Monday through Friday, except 

Federal holidays. The AD docket 

contains this final rule, the mandatory 

continuing airworthiness information 

(MCAI), any comments received, and 

other information. The address for 

Docket Operations is U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue SE, 

Washington, DC 20590. 

Material Incorporated by Reference: 

• For service information identified 

in this final rule, contact EASA, KonradAdenauer-Ufer 3, 50668 Cologne, 

Germany; phone: +49 221 8999 000; 

email: ADs@easa.europa.eu; website: 

easa.europa.eu. You may find this 

material on the EASA website at 

ad.easa.europa.eu. You may find this 

material on the EASA website at 

ad.easa.europa.eu. 

• You may view this service 

information at the FAA, Airworthiness 

Products Section, Operational Safety 

Branch, 1200 District Avenue, 

Burlington, MA 01803. For information 

on the availability of this material at the 

FAA, call (817) 222–5110. It is also 

available at regulations.gov under 

Docket No. FAA–2023–1888. 

FOR FURTHER INFORMATION CONTACT: 

Sungmo Cho, Aviation Safety Engineer, 

FAA, 2200 South 216th Street, Des 

Moines, WA 98198; phone: (781) 238– 

7241; email: sungmo.d.cho@faa.gov. 

SUPPLEMENTARY INFORMATION: 

Background 

The FAA issued a notice of proposed 

rulemaking (NPRM) to amend 14 CFR 

part 39 by adding an AD that would 

apply to all RRD Model RB211–Trent 

800 engines. The NPRM published in 

the Federal Register on September 15, 

2023 (88 FR 63539); corrected on 

September 27, 2023 (88 FR 66314). The 

NPRM was prompted by EASA AD 

2023–0040, dated February 16, 2023 

(EASA AD 2023–0040) (also referred to 

as the MCAI), issued by EASA, which 

is the Technical Agent for the Member 

States of the European Union. The 

MCAI states that cracking on the IPC 

rotor shaft balance land has been 

historically observed on RRD Model 

RB211–Trent 800 engines. To address 

this unsafe condition, the manufacturer 

developed a modification, which 

introduced a revised balancing method 

that removed the original balancing 

weights from the IPC rotor shaft, and 

published service information to 

provide instructions for in-service 

modification. In addition, the 

manufacturer published service 

information to provide instructions for 

in-shop eddy current (EC) inspection of 

the IPC rotor shaft balance land. 

Consequently, EASA issued EASA AD 

2014–0152, dated June 20, 2014; 

corrected June 25, 2014; revised March 

2, 2018 (EASA AD 2014–0152R1). 

Since EASA issued EASA AD 2014– 

0152R1, the manufacturer determined 

that certain RB211–Trent 800 engines 

were not inspected during engine 

refurbishment. The manufacturer then 

identified the IPC rotor shaft balance 

lands that were not inspected and 

published service information that 

describes procedures to perform a BSI of 

the IPC rotor shaft balance land until the 

in-shop EC inspection is accomplished. 

To address this, EASA issued the MCAI. 

In the NPRM, the FAA proposed to 

require initial and repetitive on-wing or 

in-shop BSIs of certain IPC rotor shaft 

balance lands for cracks, dents, and 

nicks, and replacement of the IPC rotor 

shaft if necessary, and proposed to 

prohibit the installation of a certain IPC 

rotor shaft on any engine. The FAA is 

issuing this AD to address the unsafe 

condition on these products. 

You may examine the MCAI in the 

AD docket at regulations.gov under 

Docket No. FAA–2023–1888. 

Discussion of Final Airworthiness 

Directive 

Comments 

The FAA received a comment from 

The Boeing Company (Boeing). Boeing 

supported the NPRM without change. 

Conclusion 

These products have been approved 

by the aviation authority of another 

country and are approved for operation 

in the United States. Pursuant to the 

FAA’s bilateral agreement with this 

State of Design Authority, it has notified 

the FAA of the unsafe condition 

described in the MCAI referenced 

above. The FAA reviewed the relevant 

data, considered the comment received, 

and determined that air safety requires 


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