Source: https://www.law.cornell.edu/cfr/text/12/217.122
Timestamp: 2019-05-21 09:04:20
Document Index: 575105210

Matched Legal Cases: ['§ 217', '§ 217', '§ 217', '§ 217', '§ 217', '§ 217', '§ 217', '§ 217', '§ 217', '§ 217', '§ 217', '§ 217']

12 CFR § 217.122 - Qualification requirements. | CFR | US Law | LII / Legal Information Institute
Section 217.122. Qualification requirements.
12 CFR § 217.122 - Qualification requirements.
§ 217.122 Qualification requirements.
(a)Process and systems requirements.
(1) A Board-regulated institution must have a rigorous process for assessing its overall capital adequacy in relation to its risk profile and a comprehensive strategy for maintaining an appropriate level of capital.
(b)Risk rating and segmentation systems for wholesale and retail exposures. (1)(i) A Board-regulated institution must have an internal risk rating and segmentation system that accurately, reliably, and meaningfully differentiates among degrees of credit risk for the Board-regulated institution's wholesale and retail exposures. When assigning an internal risk rating, a Board-regulated institution may consider a third-party assessment of credit risk, provided that the Board-regulated institution's internal risk rating assignment does not rely solely on the external assessment.
(i) A Board-regulated institution must have an internal risk rating system that accurately and reliably assigns each obligor to a single rating grade (reflecting the obligor's likelihood of default). A Board-regulated institution may elect, however, not to assign to a rating grade an obligor to whom the Board-regulated institution extends credit based solely on the financial strength of a guarantor, provided that all of the Board-regulated institution's exposures to the obligor are fully covered by eligible guarantees, the Board-regulated institution applies the PD substitution approach in § 217.134(c)(1) to all exposures to that obligor, and the Board-regulated institution immediately assigns the obligor to a rating grade if a guarantee can no longer be recognized under this part. The Board-regulated institution's wholesale obligor rating system must have at least seven discrete rating grades for non- defaulted obligors and at least one rating grade for defaulted obligors.
(i) A Board-regulated institution must have an internal system that groups retail exposures into the appropriate retail exposure subcategory and groups the retail exposures in each retail exposure subcategory into separate segments with homogeneous risk characteristics that provide a meaningful differentiation of risk. The Board-regulated institution's system must identify and group in separate segments by subcategories exposures identified in § 217.131(c)(2)(ii) and (iii).
(c)Quantification of risk parameters for wholesale and retail exposures.
(1) The Board-regulated institution must have a comprehensive risk parameter quantification process that produces accurate, timely, and reliable estimates of the risk parameters on a consistent basis for the Board-regulated institution's wholesale and retail exposures.
(7)Default, loss severity, and exposure amount data must include periods of economic downturn conditions, or the Board-regulated institution must adjust its estimates of risk parameters to compensate for the lack of data from periods of economic downturn conditions.
(8) The Board-regulated institution's PD, LGD, and EAD estimates must be based on the definition of default in § 217.101.
(9) If a Board-regulated institution uses internal data obtained prior to becoming subject to this subpart E or external data to arrive at PD, LGD, or EAD estimates, the Board-regulated institution must demonstrate to the Board that the Board-regulated institution has made appropriate adjustments if necessary to be consistent with the definition of default in § 217.101. Internal data obtained after the Board-regulated institution becomes subject to this subpart E must be consistent with the definition of default in § 217.101.
(11) The Board-regulated institution must, at least annually, conduct a comprehensive review and analysis of reference data to determine relevance of the reference data to the Board-regulated institution's exposures, quality of reference data to support PD, LGD, and EAD estimates, and consistency of reference data to the definition of default in § 217.101.
(d)Counterparty credit risk model. A Board-regulated institution must obtain the prior written approval of the Board under § 217.132 to use the internal models methodology for counterparty credit risk and the advanced CVA approach for the CVA capital requirement.
(e)Double default treatment. A Board-regulated institution must obtain the prior written approval of the Board under § 217.135 to use the double default treatment.
(f)Equity exposures model. A Board-regulated institution must obtain the prior written approval of the Board under § 217.153 to use the internal models approach for equity exposures.
(g)Operational risk.
(1)Operational risk management processes. A Board-regulated institution must:
(2)Operational risk data and assessment systems. A Board-regulated institution must have operational risk data and assessment systems that capture operational risks to which the Board-regulated institution is exposed. The Board-regulated institution's operational risk data and assessment systems must:
(A)Internal operational loss event data. The Board-regulated institution must have a systematic process for capturing and using internal operational loss event data in its operational risk data and assessment systems.
(B)External operational loss event data. The Board-regulated institution must have a systematic process for determining its methodologies for incorporating external operational loss event data into its operational risk data and assessment systems.
(C)Scenario analysis. The Board-regulated institution must have a systematic process for determining its methodologies for incorporating scenario analysis into its operational risk data and assessment systems.
(D)Business environment and internal control factors. The Board-regulated institution must incorporate business environment and internal control factors into its operational risk data and assessment systems. The Board-regulated institution must also periodically compare the results of its prior business environment and internal control factor assessments against its actual operational losses incurred in the intervening period.
(3)Operational risk quantification systems.
(i) The Board-regulated institution's operational risk quantification systems:
(h)Data management and maintenance.
(1) A Board-regulated institution must have data management and maintenance systems that adequately support all aspects of its advanced systems and the timely and accurate reporting of risk-based capital requirements.
(i)Control, oversight, and validation mechanisms.
(1) The Board-regulated institution's senior management must ensure that all components of the Board-regulated institution's advanced systems function effectively and comply with the qualification requirements in this section.
(ii)Maintains the integrity, reliability, and accuracy of the Board-regulated institution's advanced systems; and
(j)Documentation. The Board-regulated institution must adequately document all material aspects of its advanced systems.