High commercial real estate exposures (§ 628.32) Provisions assigning higher risk weight not adopted in this rulemaking. Additional rulemaking or guidance may take place in future. Past due and nonaccrual exposures (§ 628.32) Assigns a 150-percent risk weight to exposures that are past due or in nonaccrual status, unless they are residential mortgage exposures or they are guaranteed or secured by financial collateral. Off-balance Sheet Items (§ 628.33) Certain credit conversion factors (CCF) revised, including the CCF for unused short-term commitments that are not unconditionally cancellable, which is increased from 0 percent to 20 percent. OTC Derivative Contracts (does not include cleared transactions) (§ 628.34) Modifies derivative matrix table slightly. Recognizes credit risk mitigation of collateralized OTC derivative contracts. Cleared Transactions (§ 628.35) Provides preferential capital requirements for cleared derivative and repo-style transactions (as compared to requirements for non-cleared transactions) with central counterparties that meet specified standards. Guarantees and Credit Derivatives (§ 628.36) Provides a more comprehensive recognition of guarantees. Collateralized Transactions (§ 628.37) Recognizes financial collateral. Unsettled Transactions (§ 628.38) Risk weight depends on number of business days past settlement date.
banks to obtain the approval of shareholders owning two thirds of the shares of each affected class as well as OCC approval. The System Comment Letter requested that institutions be able to redeem and revolve equities owned by the estate of a deceased former borrower and equities related to a defaulted or restructured loan without restriction. As discussed below in the section-by-section discussion, we have decided to exempt some of these redemptions and revolvements, as well as redemptions and revolvements ordered by a court, from the minimum holding period requirements in the safe harbor. This means that such cash redemptions and revolvements remain subject to the safe harbor on the amount of cash payments the institution can make. 8. Risk Weighting of Electric Cooperative Assets By FCA Bookletter BL-053, dated February 27, 2007, the FCA permitted System institutions to assign a lower risk weight than would otherwise apply to certain electrical cooperative assets, based on the unique characteristics and lower risk profile of this industry segment. Exposures to certain electrical cooperative assets that satisfy specified conditions receive a 50-percent rather than a 100-percent risk weight. Furthermore, exposures to these assets receive a 20-percent risk weight if the assets have a AAA or AA credit rating. We did not propose this favorable risk weighting for these exposures in this rule, but we sought comment as to whether we should retain this risk weighting. We received comments from approximately 65 electric cooperatives, in the System Comment Letter, and from several individual System institutions, all requesting that we retain a favorable risk weighting for these exposures. The electric cooperatives specifically urged us to retain the 50-percent risk weighting, stating that the rationale in BL-053 regarding the unique characteristics and lower risk profile of the industry segment remains valid today. These commenters also asserted that raising the risk weighting would drive up their borrowing costs and would ultimately hurt rural electric rate payers.
TABLE 3 – RISK WEIGHTS FOR FOREIGN PSE GENERAL OBLIGATIONS Risk Weight (in percent) Sovereign CRC 0-1 20 2 50 3 100 4-7 150 OECD Member with no CRC 20 Non-OECD Member with no CRC 100 Sovereign Default 150 TABLE 4 – RISK WEIGHTS FOR FOREIGN PSE REVENUE OBLIGATIONS Risk Weight (in percent) Sovereign CRC 0-1 50 2-3 100 4-7 150 OECD Member with no CRC 50 Non-OECD Member with no CRC 100 Sovereign Default 150 19. Summary Comparison of Current Risk-Weighting Rules versus Revised Risk-Weighting Rules
Most exposures to U.S. depository institutions or credit unions (including those that are OFIs) 20% 20% Exposures to U.S. public sector entities (PSEs) 20% -- general obligations 50% -- revenue obligations 20% -- general obligations 50% -- revenue obligations Exposures to other System institutions that are not deducted from tier 1 or tier 2 capital 20% 20% Corporate exposures (including exposures to agricultural borrowers and to OFIs that do not satisfy the criteria for a lower risk weight). 100% -- generally 50% -- lower risk OFIs that do not satisfy the criteria for 20% 100% -- generally 50% -- lower risk OFIs that do not satisfy the criteria for 20% Past due and nonaccrual exposures Generally no change when an exposure is past due or in nonaccrual status Past due or nonaccrual residential loans -- 100% 100% -- residential mortgage exposures 150% -- all other exposures, for the portion that is not guaranteed or secured by financial collateral 90 days or more past due or in nonaccrual
Claims on foreign PSEs 20% for general obligations of states and political subdivisions of OECD countries 50% for revenue obligations of states and political subdivisions of OECD countries 100% for all obligations of states and political subdivisions of countries Risk weight depends on the home country's CRC. If there is no CRC, risk depends on OECD membership of home country. Risk weights range between 20% and 150% for general obligations and between 50% and 150% for revenue obligations. 150% for a PSE in a home country with a sovereign default.
commitment with an original maturity of 14 months or less, or which is unconditionally cancellable by the System institution at any time. 20% for short-term, self-liquidating, trade-related contingent items. 50% for the unused portion of a commitment with an original maturity of more than 14 months that is not unconditionally cancellable by the System institution. 50% for contingent items (performance bonds, bid bonds, warranties, and standby letters of credit). 100% for guarantees, repurchase agreements, securities lending and borrowing commitment that is unconditionally cancellable by the System institution. 20% for the unused portion of a commitment with an original maturity of 14 months or less that is not unconditionally cancellable by the System institution. 20% for self- liquidating related contingent items that arise from the movement of goods, with an original maturity of 14 months or less. 20% for a System bank's commitment to an association or OFI that is not unconditionally cancelable by the System bank, regardless of maturity. 50% for the unused portion of a
Credit Risk Mitigation Under the Current and Revised Rules Guarantees Generally recognizes guarantees provided by central governments, GSEs, PSEs in OECD countries, multilateral lending institutions, regional development institutions, U.S. depository institutions, foreign banks, and qualifying securities firms in OECD countries. Recognizes guarantees from eligible guarantors, as defined. Substitution treatment allows the System institution to substitute the risk weight of the protection provider for the risk weight ordinarily assigned to the exposure. Applies only to eligible guarantees and eligible credit derivatives, and adjusts for maturity mismatches, currency mismatches, and where restructuring is not treated as a credit event. Claims conditionally guaranteed by the U.S. government receive a risk weight of 20 percent.
Collateralized transactions No recognition For financial collateral only, the rule provides two approaches: 1. Simple approach A System institution may apply a risk weight to the portion of an exposure that is secured by the fair value of collateral by using the risk weight of the collateral – with a general risk weight floor of 20%. 2. Collateral haircut approach A System institution may use standard supervisory haircuts for eligible margin loans, repo- transactions, and collateralized derivative contracts. Financial collateral does not include collateral such as real estate or chattel. In all cases the System institution must have a perfected, 1st priority interest. For the simple approach there must be a collateral agreement for at least the life of the exposure; collateral must be revalued at least every 6 months; collateral other than gold must be in the same currency. 20. Disclosure Requirements -- §§ 628.61 – 628.63 (including Tables 1 – 10)