New York Codes, Rules and Regulations › Title 3 - BANKING › Chapter I - GENERAL REGULATIONS OF THE SUPERINTENDENT › Part 117 - LENDING LIMITS: INCLUSION OF CREDIT EXPOSURES ARISING FROM DERIVATIVE TRANSACTIONS › Section 117.1 - Definitions

Current through Register Vol. 46, No. 28, July 10, 2024
For the purposes of this Part:
(a) The
appropriate Federal banking
				agency
of a bank shall be the agency specified by section 3(q) of the
				Federal Deposit Insurance Act (FDIA),
				12
				USC section 1813(q), or the
				successor to such provision.
(b)
Bank
includes a bank or trust company or a savings bank formed
				under the Banking Law whose deposits are insured by the Federal Deposit
				Insurance Corporation (FDIC).
(c)
Credit derivative
means a financial contract that allows one
				party (the protection purchaser) to transfer the credit risk of one or more
				exposures (reference exposure) to another party (the protection
				provider).
(d) The
current
				credit exposure
of a bank to a counterparty on a particular date with
				respect to a derivative transaction other than a credit derivative shall be the
				amount that the bank reasonably determines would be its loss under the terms of
				the derivative contract covering such transaction if the counterparty defaulted
				on such date.
(e) The
credit exposure
of a bank to a counterparty arising from
				derivative transactions other than credit derivatives is the higher of zero or
				the sum of the then positive current credit exposures with respect to such
				derivative transactions, provided, however, that in calculating such credit
				exposure, the bank may take into account netting to the extent specified in
				section
				117.4(a) 
				of this Part.
(f)
Derivative transaction
includes any transaction that is a
				contract, agreement, swap, warrant, note, or option that is based, in whole or
				in part, on the value of, any interest in, or any quantitative measure or the
				occurrence of any event relating to, one or more commodities, securities,
				currencies, interest or other rates, indices, or other assets.
(g)
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 $25 million
				created by the derivative transactions covered by the agreement.
(h)
Eligible credit
				derivative
means a single-name credit derivative or a standard,
				non-tranched index credit derivative, provided that:
(1) the derivative contract is executed under
				standard industry credit derivative documentation and meets the requirements of
				an eligible guarantee and has been confirmed by both the protection purchaser
				and the protection provider;
(2)
				any assignment of the derivative contract has been confirmed by all relevant
				parties;
(3) if the credit
				derivative is a credit default swap, the derivative contract includes the
				following credit events:
(i) failure to pay
				any amount due under the terms of the reference exposure, subject to any
				applicable minimal payment threshold that is consistent with standard market
				practice and with a grace period that is closely in line with the grace period
				of the reference exposure; and
(ii)
				bankruptcy, insolvency, restructuring (for obligors not subject to bankruptcy
				or insolvency) inability of the obligor on the reference exposure to pay its
				debts, or its failure or admission in writing of its inability generally to pay
				its debts as they become due and similar events;
(4) the terms and conditions dictating the
				manner in which the derivative contract is to be settled are incorporated into
				the contract; and
(5) if the
				derivative contract allows for cash settlement, the contract incorporates a
				robust valuation process.