Farm Credit Administration § 615.5212

(d) Category 4: 100 Percent. This cat- tral governments that are not included egory includes all assets not specified in any other category. in the categories above or below nor (11) Claims on other financing insti- deducted dollar-for-dollar from capital tutions that do not otherwise qualify and assets as discussed in § 615.5210(c). for a lower -weight category under This category comprises standard risk this section; and assets such as those typically found in (12) All other assets not specified a loan or lease portfolio and includes: above, including but not limited to (1) All other claims on private obli- leases and receivables. gors. (e) Category 5: 200 Percent. Recourse (2) Claims on, or portions of claims obligations, direct credit substitutes, guaranteed by, non-OECD with a residual interests (other than credit- remaining maturity exceeding 1 year. enhancing interest-only strips) and (3) Claims on, or portions of claims asset-or mortgage-backed securities guaranteed by, non-OECD central gov- that are rated one category below the ernments that are not included in para- lowest investment grade category, e.g., graphs (a)(4) or (b)(4) of this section, BB. and all claims on non-OECD state and local governments. [70 FR 35351, June 17, 2005] (4) Industrial-development bonds and similar obligations issued under the § 615.5212 Credit conversion factors— auspices of states or political subdivi- off-balance sheet items. sions of the OECD-based group of coun- (a) The face amount of an off-balance tries for the benefit of a private party sheet item is generally incorporated or enterprise where that party or en- into risk-weighted assets in two steps. terprise, not the government entity, is For most off-balance sheet items, the obligated to pay the principal and in- face amount is first multiplied by a terest. credit conversion factor. (In the case of (5) Premises, plant, and equipment; direct credit substitutes and recourse other fixed assets; and other real estate obligations the full amount of the as- owned. sets enhanced are multiplied by a cred- (6) Recourse obligations, direct credit it conversion factor). The resultant substitutes, residual interests (other credit equivalent amount is assigned to than credit-enhancing interest-only the appropriate risk-weight category strips) and asset-or mortgage-backed described in § 615.5211 according to the securities that are rated in the lowest obligor or, if relevant, the guarantor or investment grade category, e.g., BBB, the collateral. in the case of long-term ratings, or the (b) Conversion factors for various third highest rating category, e.g., A–3, types of off-balance sheet items are as P–3, in the case of short-term ratings. follows: (7) Stripped mortgage-backed securi- (1) 0 Percent. (i) Unused commitments ties and similar instruments, such as with an original maturity of 14 months interest-only strips that are not credit- or less; enhancing and principal-only strips (including such instruments guaran- (ii) Unused commitments with an teed by Government-sponsored agen- original maturity greater than 14 cies). months if: (8) Investments in Rural Business In- (A) They are unconditionally vestment Companies. cancellable by the institution; and (9) If they have not already been de- (B) The institution has the contrac- ducted from capital: tual right to, and in fact does, make a (i) Investments in unconsolidated separate credit decision based upon the companies, joint ventures, or associ- borrower’s current financial condition ated companies. before each drawing under the lending (ii) Deferred-tax assets. arrangement. (iii) Servicing assets. (2) 20 Percent. Short-term, self-liqui- (10) All non-local currency claims on dating, trade-related contingencies, in- foreign central governments, as well as cluding but not limited to commercial local currency claims on foreign cen- letters of credit.

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(3) 50 Percent. (i) Transaction-related lowing credit conversion factors as ap- contingencies (e.g., bid bonds, perform- propriate. ance bonds, warranties, and perform- ance-based standby letters of credit re- CONVERSION FACTOR MATRIX lated to a particular transaction). (In percent) (ii) Unused loan commitments with Interest Exchange an original maturity greater than 14 Remaining maturity rate rate Commodity months, including underwriting com- 1 year or less ...... 0.0 1.0 10.0 mitments and commercial credit lines. Over 1 to 5 years .... 0.5 5.0 12.0 (iii) Revolving underwriting facilities Over 5 years ...... 1.5 7.5 15.0 (RUFs), note issuance facilities (NIFs) and other similar arrangements pursu- (2) For any derivative contract that ant to which the institution’s customer does not fall within one of the cat- can issue short-term debt obligations egories in the above table, the poten- in its own name, but for which the in- tial future credit exposure is to be cal- stitution has a legally binding commit- culated using the commodity conver- ment to either: sion factors. The net current exposure (A) Purchase the obligations its cus- for multiple derivative contracts with tomer is unable to sell by a stated a single counterparty and subject to a date; or qualifying bilateral netting contract is (B) Advance funds to its customer if the net sum of all positive and negative the obligations cannot be sold. mark-to-market values for each deriva- (4) 100 Percent. (i) The full amount of tive contract. The positive sum of the the assets supported by direct credit net current exposure is added to the substitutes and recourse obligations adjusted potential future credit expo- for which an institution directly or in- sure for the same multiple contracts directly retains or assumes . with a single counterparty. The ad- For risk participations in such ar- justed potential future credit exposure × rangements acquired by the institu- is computed as Anet = (0.4 Agross) + 0.6 × tion, the full amount of assets sup- (NGR Agross) where: ported by the main obligation multi- (i) Anet is the adjusted potential fu- plied by the acquiring institution’s per- ture credit exposure; centage share of the risk participation. (ii) Agross is the sum of potential fu- ture credit exposures determined by The under this multiplying the notional principal paragraph is limited to the institu- amount by the appropriate credit con- tion’s maximum contractual exposure, version factor; and less any recourse liability account es- (iii) NGR is the ratio of the net cur- tablished under generally accepted ac- rent credit exposure divided by the counting principles. gross current credit exposure deter- (ii) Acquisitions of risk participa- mined as the sum of only the positive tions in bankers acceptances. mark-to-markets for each derivative (iii) Sale and repurchase agreements, contract with the single counterparty. if not already included on the balance (3) Credit equivalents of single-cur- sheet. rency floating/floating interest rate (iv) Forward agreements (i.e., con- swaps are determined by their replace- tractual obligations) to purchase as- ment cost (mark-to-market). sets, including financing facilities with certain . [70 FR 35351, June 17, 2005] (c) Credit equivalents of interest rate contracts and foreign exchange contracts. § 615.5215 Distribution of earnings. (1) Credit equivalents of interest rate The boards of directors of System in- contracts and foreign exchange con- stitutions may not reduce the perma- tracts (except single-currency floating/ nent capital of the institution through floating interest rate swaps) are deter- the payment of patronage refunds or mined by adding the replacement cost dividends, or the retirement of stock or (mark-to-market value, if positive) to allocated equities except retirements the potential future credit exposure, pursuant to §§ 615.5280 and 615.5290 if, determined by multiplying the no- after or due to the action, the perma- tional principal amount by the fol- nent capital of the institution would

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