Source: http://regulations.delaware.gov/register/december2013/final/17%20DE%20Reg%20656%2012-01-13.htm
Timestamp: 2018-08-18 03:20:41
Document Index: 715914359

Matched Legal Cases: ['art 3', 'art 167', 'art 390', 'art 3', 'art 167', 'art 390']

5 DE Admin. Code 905
IT IS HEREBY ORDERED, this 5th day of November, 2013 that the proposed amendment to Regulation 905 "Loan Limitations: Credit Exposure to Derivative Transactions" is adopted as a regulation of the State Bank Commissioner. A copy of amended Regulation 905 is attached hereto and incorporated herein by reference. The effective date of the amended Regulation is December 11, 2013. This amended Regulation is adopted by the State Bank Commissioner in accordance with Title 5 of the Delaware Code and pursuant to the requirements of Chapter 11 and 101 of Title 29 of the Delaware Code, as follows:
1.	Notice of the proposed amendment to Regulation 905 and its text was published in the October 1, 2013 issue of the Delaware Register of Regulations. The notice was also mailed to all persons who had made a timely written request to the Office of the State Bank Commissioner for advance notice of its regulation-making proceedings. The notice included, among other things, a summary of the proposed amendment and invited interested persons to submit written comments to the Office of the State Bank Commissioner on or before October 31, 2013. The notice further stated that the proposed amendment to Regulation 905 was available for inspection during regular business hours at the Office of the State Bank Commissioner, 555 E. Loockerman Street, Suite 210; Dover, Delaware 19901 and that copies were also available upon request.
2.	No written comments concerning the proposed amendment to Regulation 905 were received on or before October 31, 2013.
3.	After review and consideration, the State Bank Commissioner hereby adopts the amendment to Regulation 905 as proposed.
“Effective margining arrangement” means a master legal agreement governing derivative transactions between a bank and a counterparty that requires the counterparty to post, on a daily basis, variation margin to fully collateralize that amount of the bank’s net credit exposure to the counterparty that exceeds $1 25 million created by the derivative transactions covered by the agreement.
C.	That portion of one or more loans or extensions of credit, not to exceed 10 percent of capital and surplus, with respect to which the bank has purchased protection in the form of a single-name credit derivative that meets the requirements of this regulation from an eligible protection provider if the reference obligor is the same legal entity as the borrower in the loan or extension of credit and the maturity of the protection purchased equals or exceeds the maturity of the loan or extension of credit.
3.2	Non-credit derivatives. Subject to Subsections 3.3 and 3.4 of this section, a A bank shall calculate the credit exposure to a counterparty arising from a derivative transaction by one of the following methods. Subject to Subsection 3.4 of this section, a A bank shall use the same method for calculating counterparty credit exposure arising from all of its derivative transactions.
3.2.1.3	Calculation of potential future credit exposure. A bank shall calculate its potential future credit exposure by using an internal model that has been approved by the Commissioner and the appropriate Federal banking agency for purposes of Section 909 of Title 5 of the Delaware Code, or any other appropriate model approved by the Commissioner and the appropriate Federal banking agency either:
3.2.1.3.1	An internal model the use of which has been approved in writing for purposes of 12 CFR part 3, Appendix C, Section 32(d), 12 CFR part 167, Appendix C, Section 32(d), or 12 CFR part 390, subpart Z, Appendix A, Section 32(d), as appropriate, provided that the bank provides prior written notice to the Commissioner and the appropriate Federal banking agency of its use for purposes of this section; or
3.2.1.3.2	Any other appropriate model the use of which has been approved in writing for purposes of this section by the Commissioner and the appropriate Federal banking agency.
Any substantive revisions to a model made after the bank or savings association has provided notice of the use of the model to its regulator or after the regulator has approved the use of the model must be approved by the [state and the] appropriate Federal banking agency before the bank may use the revised model.
3.2.2	Conversion Factor Matrix Method. The credit exposure arising from a derivative transaction under the Conversion Factor Matrix Method shall equal and remain fixed at the potential future credit exposure of the derivative transaction which shall equal the product of the notional amount of the derivative transaction and a fixed multiplicative factor as determined at the execution of the transaction by reference to Table 1 below.
3.2.3	Current Exposure Method. The credit exposure arising from a derivative transaction (other than a credit derivative transaction) under the Current Exposure Method shall be calculated pursuant to 12 CFR part 3, Appendix C, Sections 32(c)(5), (6) and (7); 12 CFR part 167, Appendix C, Sections 32(c)(5), (6) and (7); or 12 CFR part 390, subpart Z, Appendix A, Sections 32(c)(5), (6) and (7), as appropriate.
3.3.1	Counterparty Exposure.
3.3.1.1	Notwithstanding Subsection 3.2 of this section, a bank that uses the Conversion Factor Matrix Method or Remaining Maturity Method, Current Exposure Method, or that uses the Internal Model Method without entering an effective margining arrangement, as defined in Section 2.0 of this regulation, shall calculate the counterparty credit exposure arising from credit derivatives entered by the bank by adding the net notional value of all protection purchased from the counterparty on each reference entity.
3.3.1.2	Special rule for certain effective margining arrangements. A bank must add the EMA threshold amount to the counterparty credit exposure arising from credit derivatives calculated under the Model Method. The EMA threshold is the amount under an effective margining arrangement with respect to which the counterparty is not required to post variation margin to fully collateralize the amount of the bank’s net credit exposure to the counterparty.
3.3.2	Reference Entity Exposure A bank shall calculate the credit exposure to a reference entity arising from credit derivatives entered by the bank by adding the net notional value of all protection sold on the reference entity. However, the bank may reduce its exposure to a reference entity by the amount of any eligible credit derivative purchased on that reference entity from an eligible protection provider.
3.4	Special Rule for Central Counterparties. In addition to amounts calculated under previous sections of this rule, the measure of counterparty exposure to a central counterparty shall also include the sum of the initial margin posted by the bank, plus any contributions made by it to a guaranty fund at the time such contribution is made. However, this does not apply to a bank or saving association that uses an internal model pursuant to this regulation if such model reflects the initial margin and any contributions to a guaranty fund.
3.45	Mandatory use of a certain method. The Commissioner or the appropriate Federal banking agency may, in their discretion, require or permit a bank to use the Internal Model Method set forth in Subsection 3.2.1, the Conversion Factor Matrix Method set forth in Subsection 3.2.2, or the Remaining Maturity Method set forth in Subsection 3.2.3 a specific method or methods set forth in this Section 3.0 to calculate the credit exposure of arising from all derivative transactions or any specific, or category of, derivative transactions, upon finding, in their discretion, that such method is necessary to promote consistent with the safety and soundness of the bank.
16 DE Reg. 815 (02/01/13)
17 DE Reg. 656 (12/01/13) (Final)