Guarantees and credit derivatives: PD substitution and LGD adjustment approaches.

CFR · 2024-01-01 · US · Title 12

(a) (i) Credit risk is fully covered by an eligible guarantee or eligible credit derivative; or (ii) Credit risk is covered on a pro rata basis (that is, on a basis in which the national bank or Federal savings association and the protection provider share losses proportionately) by an eligible guarantee or eligible credit derivative. (2) Wholesale exposures on which there is a tranching of credit risk (reflecting at least two different levels of seniority) are securitization exposures subject to §§ 3.141 through 3.145. (3) A national bank or Federal savings association may elect to recognize the credit risk mitigation benefits of an eligible guarantee or eligible credit derivative covering an exposure described in paragraph (a)(1) of this section by using the PD substitution approach or the LGD adjustment approach in paragraph (c) of this section or, if the transaction qualifies, using the double default treatment in § 3.135. A national bank's or Federal savings association's PD and LGD for the hedged exposure may not be lower than the PD and LGD floors described in § 3.131(d)(2) and (d)(3). (4) If multiple eligible guarantees or eligible credit derivatives cover a single exposure described in paragraph (a)(1) of this section, a national bank or Federal savings association may treat the hedged exposure as multiple separate exposures each covered by a single eligible guarantee or eligible (5) If a single eligible guarantee or eligible credit derivative covers multiple hedged

official document · source cfr-2024 · id 12:§ 3.134