Source: http://virginiacourtlaws.com/author/sadmin/
Timestamp: 2017-11-22 13:00:51
Document Index: 212215199

Matched Legal Cases: ['§ 347', '§ 347', '§ 347', '§ 308', '§ 308', '§ 324', '§ 324', '§ 324', '§ 324', '§ 308', '§ 324', '§ 324', '§324', '§ 324', '§ 324', '§ 324', '§324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324', '§ 324']

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(ii) Fails to maintain the eligible assets prescribed under§ 347.210 of this chapter at 106 percent or more of the preceding quarter’s average book value of the insured branch’s third-party liabilities.
(4) Significantly undercapitalized if it fails to maintain the eligible assets prescribed under§ 347.210 of this chapter at 104 percent or more of the preceding quarter’s average book value of the insured branch’s third-party liabilities.
(5) Critically undercapitalized if it fails to maintain the eligible assets prescribed under§ 347.210 of this chapter at 102 percent or more of the preceding quarter’s average book value of the insured branch’s third-party liabilities.
(d) Reclassifications based on supervisory criteria other than capital. The FDIC may reclassify a well capitalized FDIC-supervised institution as adequately capitalized and may require an adequately capitalized FDIC-supervised institution or an undercapitalized FDIC-supervised institution to comply with certain mandatory or discretionary supervisory actions as if the FDIC-supervised institution were in the next lower capital category (except that the FDIC may not reclassify a significantly undercapitalized FDIC-supervised institution as critically undercapitalized) (each of these actions are hereinafter referred to generally as reclassifications) in the following circumstances:
(1) Unsafe or unsound condition. The FDIC has determined, after notice and opportunity for hearing pursuant to § 308.202(a) of this chapter, that the FDIC-supervised institution is in unsafe or unsound condition; or
(2) Unsafe or unsound practice. The FDIC has determined, after notice and opportunity for hearing pursuant to § 308.202(a) of this chapter, that, in the most recent examination of the FDIC-supervised institution, the FDIC-supervised institution received and has not corrected a less-than-satisfactory rating for any of the categories of asset quality, management, earnings, or liquidity.
At 79 FR 24541, May 1, 2014, § 324.403 was amended by revising paragraph (b)(1)(v), effective Jan. 1, 2018. For the convenience of the user, the revised text is set forth as follows:
(v) Beginning on January 1, 2018 and thereafter, an FDIC-supervised institution that is a subsidiary of a covered BHC will be deemed to be well capitalized if the FDIC-supervised institution satisfies paragraphs (b)(1)(i) through (iv) of this section and has a supplementary leverage ratio of 6.0 percent or greater. For purposes of this paragraph, a covered BHC means a U.S. top-tier bank holding company with more than $700 billion in total assets as reported on the company’s most recent Consolidated Financial Statement for Bank Holding Companies (FR Y-9C) or more than $10 trillion in assets under custody as reported on the company’s most recent Banking Organization Systemic Risk Report (FR Y-15);
(a) Schedule for filing plan
(1) In general. An FDIC-supervised institution shall file a written capital restoration plan with the appropriate FDIC regional director within 45 days of the date that the FDIC-supervised institution receives notice or is deemed to have notice that the FDIC-supervised institution is undercapitalized, significantly undercapitalized, or critically undercapitalized, unless the FDIC notifies the FDIC-supervised institution in writing that the plan is to be filed within a different period. An adequately capitalized FDIC-supervised institution that has been required pursuant to § 324.403(d) to comply with supervisory actions as if the FDIC-supervised institution were undercapitalized is not required to submit a capital restoration plan solely by virtue of the reclassification.
(3) Additional provisions applicable to significantly undercapitalized, and critically undercapitalized FDIC-supervised institutions. In addition to the provisions of section 38 of the FDI Act described in paragraph (a)(2) of this section, immediately upon receiving notice or being deemed to have notice, as provided in § 324.402, that the FDIC-supervised institution is significantly undercapitalized, or critically undercapitalized, or that the FDIC-supervised institution is subject to the provisions applicable to institutions that are significantly undercapitalized because the FDIC-supervised institution failed to submit or implement in any material respect an acceptable capital restoration plan, the FDIC-supervised institution shall become subject to the provisions of section 38 of the FDI Act that restrict compensation paid to senior executive officers of the institution (section 38(f)(4) of the FDI Act).
(4) Additional provisions applicable to critically undercapitalized institutions.
(i) In addition to the provisions ofsection 38 of the FDI Act described in paragraphs (a)(2) and (a)(3) of this section, immediately upon receiving notice or being deemed to have notice, as provided in § 324.402, that the insured depository institution is critically undercapitalized, the institution is prohibited from doing any of the following without the FDIC’s prior written approval:
(A) Entering into any material transaction other than in the usual course of business, including any investment, expansion, acquisition, sale of assets, or other similar action with respect to which the depository institution is required to provide notice to the appropriate Federal banking agency;
(B) Extending credit for any highly leveraged transaction;
(C) Amending the institution’s charter or bylaws, except to the extent necessary to carry out any other requirement of any law, regulation, or order;
(D) Making any material change in accounting methods;
(E) Engaging in any covered transaction (as defined insection 23A(b) of the Federal Reserve Act (12 U.S.C. 371c(b)));
(F) Paying excessive compensation or bonuses;
(G) Paying interest on new or renewed liabilities at a rate that would increase the institution’s weighted average cost of funds to a level significantly exceeding the prevailing rates of interest on insured deposits in the institution’s normal market areas; and
(H) Making any principal or interest payment on subordinated debt beginning 60 days after becoming critically undercapitalized except that this restriction shall not apply, until July 15, 1996, with respect to any subordinated debt outstanding on July 15, 1991, and not extended or otherwise renegotiated after July 15, 1991.
(ii) In addition, the FDIC may further restrict the activities of any critically undercapitalized institution to carry out the purposes ofsection 38 of the FDI Act.
(iii) The FDIC-supervised institution must remain in compliance with the plan or is operating under a written agreement with the appropriate Federal banking agency.
(b) Discretionary supervisory actions. In taking any action undersection 38 of the FDI Act that is within the FDIC’s discretion to take in connection with:
(1) An insured depository institution that is deemed to be undercapitalized, significantly undercapitalized, or critically undercapitalized, or has been reclassified as undercapitalized, or significantly undercapitalized; or
(2) An officer or director of such institution, the FDIC shall follow the procedures for issuing directives under§§ 308.201 and 308.203 of this chapter, unless otherwise provided in section 38 of the FDI Act or this subpart H.
(d) Non-modeled securitization positions. For securitization positions that are not correlation trading positions and for securitizations that are correlation trading positions not modeled under § 324.209, the total specific risk add-on is the greater of:
(1) The sum of the FDIC-supervised institution’s specific risk add-ons for each net long securitization position calculated under this section; or
(2) The sum of the FDIC-supervised institution’s specific risk add-ons for each net short securitization position calculated under this section.
(e) Equity positions. The total specific risk add-on for a portfolio of equity positions is the sum of the specific risk add-ons of the individual equity positions, as computed under this section. To determine the specific risk add-on of individual equity positions, an FDIC-supervised institution must multiply the absolute value of the current fair value of each net long or net short equity position by the appropriate specific risk-weighting factor as determined under this paragraph (e):
(1) The FDIC-supervised institution must multiply the absolute value of the current fair value of each net long or net short equity position by a specific risk-weighting factor of 8.0 percent. For equity positions that are index contracts comprising a well-diversified portfolio of equity instruments, the absolute value of the current fair value of each net long or net short position is multiplied by a specific risk-weighting factor of 2.0 percent.29
29 A portfolio is well-diversified if it contains a large number of individual equity positions, with no single position representing a substantial portion of the portfolio’s total fair value.
(2) For equity positions arising from the following futures-related arbitrage strategies, an FDIC-supervised institution may apply a 2.0 percent specific risk-weighting factor to one side (long or short) of each position with the opposite side exempt from an additional capital requirement:
(3) For futures contracts on main indices that are matched by offsetting positions in a basket of stocks comprising the index, an FDIC-supervisedinstitution may apply a 2.0 percent specific risk-weighting factor to the futures and stock basket positions (long and short), provided that such trades are deliberately entered into and separately controlled, and that the basket of stocks is comprised of stocks representing at least 90.0 percent of the capitalization of the index.
(f) Due diligence requirements for securitization positions.
(1) An FDIC-supervised institution must demonstrate to the satisfaction of the FDIC a comprehensive understanding of the features of a securitization position that would materially affect the performance of the position by conducting and documenting the analysis set forth in paragraph (f)(2) of this section. The FDIC-supervised institution’s analysis must be commensurate with the complexity of the securitization position and the materiality of the position in relation to capital.
(2) An FDIC-supervised institution must demonstrate its comprehensive understanding for each securitization position by:
Less than or equal to 0.938 percent (plus 37.5 percent of any applicable countercyclical capital buffer amount), and greater than 0.625 percent (plus 25 percent of any applicable countercyclical capital buffer amount)	40 percent.
Less than or equal to 0.625 percent (plus 25 percent of any applicable countercyclical capital buffer amount), and greater than 0.313 percent (plus 12.5 percent of any applicable countercyclical capital buffer amount)	20 percent.
Less than or equal to 0.313 percent (plus 12.5 percent of any applicable countercyclical capital buffer amount)	0 percent.
Calendar year 2018	Greater than 1.875 percent (plus 75 percent of any applicable countercyclical capital buffer amount)	No payout ratio limitation applies under this section.
Less than or equal to 1.875 percent (plus 75 percent of any applicable countercyclical capital buffer amount), and greater than 1.406 percent (plus 56.25 percent of any applicable countercyclical capital buffer amount)	60 percent.
Less than or equal to 1.406 percent (plus 56.25 percent of any applicable countercyclical capital buffer amount), and greater than 0.938 percent (plus 37.5 percent of any applicable countercyclical capital buffer amount)	40 percent.
Less than or equal to 0.938 percent (plus 37.5 percent of any applicable countercyclical capital buffer amount), and greater than 0.469 percent (plus 18.75 percent of any applicable countercyclical capital buffer amount)	20 percent.
Less than or equal to 0.469 percent (plus 18.75 percent of any applicable countercyclical capital buffer amount)	0 percent.
(b) Regulatory capital adjustments and deductions. Beginning January 1, 2014, for an advanced approaches FDIC-supervised institution, and beginning January 1, 2015, for an FDIC-supervised institution that is not an advanced approaches FDIC-supervised institution, and in each case through December 31, 2017, an FDIC-supervised institution must make the capital adjustments and deductions in § 324.22 in accordance with the transition requirements in this paragraph (b). Beginning January 1, 2018, an FDIC-supervised institution must make all regulatory capital adjustments and deductions in accordance with §324.22.
(1) Transition deductions from common equity tier 1 capital. Beginning January 1, 2014, for an advanced approaches FDIC-supervised institution, and beginning January 1, 2015, for an FDIC-supervised institution that is not an advanced approaches FDIC-supervised institution, and in each case through December 31, 2017, an FDIC-supervised institution, must make the deductions required under § 324.22(a)(1)(7) from common equity tier 1 or tier 1 capital elements in accordance with the percentages set forth in Tables 2 and 3 to § 324.300.
(i) An FDIC-supervised institution must deduct the following items from common equity tier 1 and additional tier 1 capital in accordance with the percentages set forth in Table 2 to§ 324.300: Goodwill (§324.22(a)(1)), DTAs that arise from net operating loss and tax credit carryforwards (§ 324.22(a)(3)), a gain-on-sale in connection with a securitization exposure (§ 324.22(a)(4)), defined benefit pension fund assets (§ 324.22(a)(5)), expected credit loss that exceeds eligible credit reserves (for advanced approaches FDIC-supervised institutions that have completed the parallel run process and that have received notifications from the FDIC pursuant to § 324.121(d) of subpart E) (§ 324.22(a)(6)), and financial subsidiaries (§ 324.22(a)(7)).
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(vi) To the extent the comprehensive risk measure incorporates the benefits of dynamic hedging, the static nature of the hedge over the liquidity horizon must be recognized. In such cases, an FDIC-supervised institution must:
(3) The FDIC-supervised institution must use market data that are relevant in representing the risk profile of the FDIC-supervised institution’s correlation trading positions in order to ensure that the FDIC-supervised institution fully captures the material risks of the correlation trading positions in its comprehensive risk measure in accordance with this section; and
(4) The FDIC-supervised institution must be able to demonstrate that its model is an appropriate representation of comprehensive risk in light of the historical price variation of its correlation trading positions.
(1) An FDIC-supervised institution must at least weekly apply specific, supervisory stress scenarios to its portfolio of correlation trading positions that capture changes in:
(i) An FDIC-supervised institution must retain and make available to the FDIC the results of the supervisory stress testing, including comparisons with the capital requirements generated by the FDIC-supervised institution’s comprehensive risk model.
(ii) An FDIC-supervised institution must report to the FDIC promptly anyinstances where the stress tests indicate any material deficiencies in the comprehensive risk model.
(a) General requirement. An FDIC-supervised institution must calculate a total specific risk add-on for each portfolio of debt and equity positions for which the FDIC-supervised institution’s VaR-based measure does not capture all material aspects of specific risk and for all securitization positions that are not modeled under §324.209. An FDIC-supervised institution must calculate each specific risk add-on in accordance with the requirements of this section. Notwithstanding any other definition or requirement in this subpart, a position that would have qualified as a debt position or an equity position but for the fact that it qualifies as a correlation trading position under paragraph (2) of the definition of correlation trading position in § 324.2, shall be considered a debt position or an equity position, respectively, for purposes of this § 324.210.
Quantitative disclosures	(b)	Carrying value on the balance sheet of equity investments, as well as the fair value of those investments.
(c)	The types and nature of investments, including the amount that is:(1) Publicly traded; and (2) Non-publicly traded.
(d)	The cumulative realized gains (losses) arising from sales and liquidations in the reporting period.
(e)	(1) Total unrealized gains (losses) 1 (2) Total latent revaluation gains (losses) 2 (3) Any amounts of the above included in tier 1 and/or tier 2 capital.
(f)	Capital requirements categorized by appropriate equity groupings, consistent with the FDIC-supervised institution’s methodology, as well as the aggregate amounts and the type of equity investments subject to any supervisory transition regarding total capital requirements.3
Table 12 to § 324.173 Interest Rate Risk for Non-trading Activities
Qualitative disclosures	(a)	The general qualitative disclosure requirement, including the nature of interest rate risk for non-trading activities and key assumptions, including assumptions regarding loan prepayments and behavior of non-maturity deposits, and frequency of measurement of interest rate risk for non-trading activities.
Quantitative disclosures	(b)	The increase (decline) in earnings or economic value (or relevant measure used by management) for upward and downward rate shocks according to management’s method for measuring interest rate risk for non-trading activities, categorized by currency (as appropriate).
(c) Except as provided in§ 324.172(b), an FDIC-supervised institution described in § 324.172(d) must make the disclosures described in Table 13 to § 324.173; provided, however, the disclosures required under this paragraph are required without regard to whether the FDIC-supervised institution has completed the parallel run process and has received notification from the FDIC pursuant to § 324.121(d). The FDIC-supervised institution must make these disclosures publicly available beginning on January 1, 2015.
(a) Purpose. This subpart F establishes risk-based capital requirements for FDIC-supervised institutions with significant exposure to market risk, provides methods for these FDIC-supervised institutions to calculate their standardized measure for market risk and, if applicable, advanced measure for market risk, and establishes public disclosure requirements.
(1) This subpart F applies to any FDIC-supervised institution with aggregate trading assets and trading liabilities (as reported in the FDIC-supervised institution’s most recent quarterly Call Report), equal to:
(2) The FDIC may apply this subpart to any FDIC-supervised institution if the FDIC deems it necessary or appropriate because of the level of market risk of the FDIC-supervised institution or to ensure safe and sound banking practices.
(3) The FDIC may exclude an FDIC-supervised institution that meets the criteria of paragraph (b)(1) of this section from application of this subpart if the FDIC determines that the exclusion is appropriate based on the level of market risk of the FDIC-supervised institution and is consistent with safe and sound banking practices.
(c) Reservation of authority
(1) The FDIC may require an FDIC-supervised institution to hold an amount of capital greater than otherwise required under this subpart if the FDIC determines that the FDIC-supervised institution’s capital requirement for market risk as calculated under this subpart is not commensurate with the market risk of the FDIC-supervised institution’s covered positions. In making determinations under paragraphs (c)(1) through (c)(3) of this section, the FDIC will apply notice and response procedures generally in the same manner as the notice and response procedures set forth in§ 324.5(c).
An advanced approaches FDIC-supervised institution that has completed the parallel run process and that has received notifications from the FDIC pursuant to § 324.121(d) also must calculate the advanced measure for market risk, which equals the sum of the VaR-based capital requirement, stressed VaR-based capital requirement, specific risk add-ons, incremental risk capital requirement, comprehensive risk capital requirement, and capital requirement for de minimis exposures as defined under this paragraph (a)(2), plus any additional capital requirement established by the FDIC.
(i) VaR-based capital requirement. An FDIC-supervised institution’s VaR-based capital requirement equals the greater of:
(A) The previous day’s VaR-based measure as calculated under§ 324.205; or
(B) The average of the daily VaR-based measures as calculated under§ 324.205 for each of the preceding 60 business days multiplied by three, except as provided in paragraph (b) of this section.
(ii) Stressed VaR-based capital requirement. An FDIC-supervised institution’s stressed VaR-based capital requirement equals the greater of:
(A) The most recent stressed VaR-based measure as calculated under§ 324.206; or
(B) The average of the stressed VaR-based measures as calculated under§ 324.206 for each of the preceding 12 weeks multiplied by three, except as provided in paragraph (b) of this section.
(iii) Specific risk add-ons. An FDIC-supervised institution’s specific risk add-ons equal any specific risk add-ons that are required under § 324.207 and are calculated in accordance with § 324.210.
(iv) Incremental risk capital requirement. An FDIC-supervised institution’s incremental risk capital requirement equals any incremental risk capital requirement as calculated under § 324.208.
(v) Comprehensive risk capital requirement. An FDIC-supervised institution’s comprehensive risk capital requirement equals any comprehensive risk capital requirement as calculated under § 324.209.
(vi) Capital requirement for de minimis exposures. An FDIC-supervised institution’s capital requirement for de minimis exposures equals:
(A) The absolute value of the fair value of thosede minimis exposures that are not captured in the FDIC-supervised institution’s VaR-based measure or under paragraph (a)(2)(vi)(B) of this section; and
(B) With the prior written approval of the FDIC, the capital requirement for anyde minimis exposures using alternative techniques that appropriately measure the market risk associated with those exposures.
(b) Backtesting. An FDIC-supervised institution must compare each of its most recent 250 business days’ trading losses (excluding fees, commissions, reserves, net interest income, and intraday trading) with the corresponding daily VaR-based measures calibrated to a one-day holding period and at a one-tail, 99.0 percent confidence level. An FDIC-supervised institution must begin backtesting as required by this paragraph (b) no later than one year after the later of January 1, 2014, and the date on which the FDIC-supervised institution becomes subject to this subpart. In the interim, consistent with safety and soundness principles, an FDIC-supervised institution subject to this subpart as of January 1, 2014 should continue to follow backtesting procedures in accordance with the FDIC’s supervisory expectations.
(1) Once each quarter, the FDIC-supervised institution must identify the number of exceptions (that is, the number of business days for which the actual daily net trading loss, if any, exceeds the corresponding daily VaR-based measure) that have occurred over the preceding 250 business days.
(2) An FDIC-supervised institution must use the multiplication factor in Table 1 to§ 324.204 that corresponds to the number of exceptions identified in paragraph (b)(1) of this section to determine its VaR-based capital requirement for market risk under paragraph (a)(2)(i) of this section and to determine its stressed VaR-based capital requirement for market risk under paragraph (a)(2)(ii) of this section until it obtains the next quarter’s backtesting results, unless the FDIC notifies the FDIC-supervised institution in writing that a different adjustment or other action is appropriate.
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(8) Maintain consistency with the FDIC-supervised institution’s internal risk management methodologies for identifying, measuring, and managing risk.
(1) Subject to the prior approval of the FDIC, an FDIC-supervised institution may use the method in this section to measure comprehensive risk, that is, all price risk, for one or more portfolios of correlation trading positions.
(2) An FDIC-supervised institution that measures the price risk of a portfolio of correlation trading positions using internal models must calculate at least weekly a comprehensive risk measure that captures all price risk according to the requirements of this section. The comprehensive risk measure is either:
(A) The FDIC-supervised institution’s modeled measure of all price risk determined according to the requirements in paragraph (b) of this section; and
(B) A surcharge for the FDIC-supervised institution’s modeled correlation trading positions equal to the total specific risk add-on for such positions as calculated under§ 324.210 multiplied by 8.0 percent; or
(ii) With approval of the FDIC and provided the FDIC-supervised institution has met the requirements of this section for a period of at least one year and can demonstrate the effectiveness of the model through the results of ongoing model validation efforts including robust benchmarking, the greater of:
(A) The FDIC-supervised institution’s modeled measure of all price risk determined according to the requirements in paragraph (b) of this section; or
(B) The total specific risk add-on that would apply to the bank’s modeled correlation trading positions as calculated under§ 324.210 multiplied by 8.0 percent.
(b) Requirements for modeling all price risk. If an FDIC-supervised institution uses an internal model to measure the price risk of a portfolio of correlation trading positions:
(v) Recovery rate volatility as it relates to the propensity for recovery rates to affect tranche prices;
(2) An FDIC-supervised institution must treat an investment in a separateaccount (as defined in § 324.2), as if it were an equity exposure to an investment fund as provided in § 324.154.
(3) Stable value protection.
(i) Stable value protection means a contract where the provider of the contract is obligated to pay:
(A) The policy owner of a separate account an amount equal to the shortfall between the fair value and cost basis of the separate account when the policy owner of the separate account surrenders the policy, or
(B) The beneficiary of the contract an amount equal to the shortfall between the fair value and book value of a specified portfolio of assets.
(ii) An FDIC-supervised institution that purchases stable value protection on its investment in a separate account must treat the portion of the carrying value of its investment in the separate account attributable to the stable value protection as an exposure to the provider of the protection and the remaining portion of the carrying value of its separate account as an equity exposure to an investment fund.
(iii) An FDIC-supervised institution that provides stable value protection must treat the exposure as an equity derivative with an adjusted carrying value determined as the sum of§ 324.151(b)(1) and (2).
(b) Adjusted carrying value. For purposes of this subpart, the adjusted carrying value of an equity exposure is:
(1) For the on-balance sheet component of an equity exposure, the FDIC-supervised institution’s carrying value of the exposure;
(2) For the off-balance sheet component of an equity exposure, the effective notional principal amount of the exposure, the size of which is equivalent to a hypothetical on-balance sheet position in the underlying equity instrument that would evidence the same change in fair value (measured in dollars) for a given small change in the price of the underlying equity instrument, minus the adjusted carrying value of the on-balance sheet component of the exposure as calculated in paragraph (b)(1) of this section.
(3) For unfunded equity commitments that are unconditional, the effective notional principal amount is the notional amount of the commitment. For unfunded equity commitments that are conditional, the effective notional principal amount is the FDIC-supervised institution’s best estimate of the amount that would be funded under economic downturn conditions.
(a) General. Under the SRWA, an FDIC-supervised institution’s aggregate risk-weighted asset amount for its equity exposures is equal to the sum of the risk-weighted asset amounts for each of the FDIC-supervised institution’s individual equity exposures (other than equity exposures to an investment fund) as determined in this section and the risk-weighted asset amounts for each of the FDIC-supervised institution’s individual equity exposures to an investment fund as determined in § 324.154.
(b) SRWA computation for individual equity exposures. An FDIC-supervised institution must determine the risk-weighted asset amount for an individual equity exposure (other than an equity exposure to an investment fund) by multiplying the adjusted carrying value of the equity exposure or the effective portion and ineffective portion of a hedge pair (as defined in paragraph (c) of this section) by the lowest applicable risk weight in this section.
(1) Zero percent risk weight equity exposures. An equity exposure to an entity whose credit exposures are exempt from the 0.03 percent PD floor in § 324.131(d)(2) is assigned a zero percent risk weight.