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Federal Register / Vol. 86, No. 184 / Monday, September 27, 2021 / Proposed Rules
53241

Risk weights from the proposed rule:

RW%,AH

= 5% because KA+ AggEL% 4.5%

KA+ AggEL% - 0.5%
4.5%- KA+ AggEL%
RW%,Ml = 1250%
4.5% - 0.5%
+ 5%
4.5% - 0.5%

= 783% because 0.5% RW%,B

= 1250% becasue KA+ AggEL% 0.5%

Risk weights from the ERCF:

ERCF _RW%,AH

= 10% because KA+ AggEL% 4.5%

KA+ AggEL% - 0.5%
4.5% - KA+ AggEL%
ERCF_RW%,Ml = 1250%
+ 10%
4 .S% _ 0.S%
4 .S% _ 0.5%

= 785% because 0.5% ERCF_RW%,B

= 1250%becasue KA +AggEL% 0.5%

where
RW A$ 8%
$343.8m 8%
KA= 100% AggUPB$ = 100% $l000m = 2.75%

Next, the Enterprise would calculate the adjusted exposure amount of its retained CRT exposures to reflect the effectiveness of the CRT in transferring credit risk on the underlying mortgage exposures. For the illustrative CRT, tranches AH and B are retained by the Enterprise, and do not need further adjustment. Risk associated with tranche M1 is transferred through a capital markets transaction and a loss sharing agreement. For the proposed rule, risk transfer on this tranche is subject to the following two effectiveness adjustments, which are reflected in the Enterprises adjusted exposure amount: Loss sharing effectiveness adjustment LSEA and
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loss timing effectiveness adjustment LTEA. The current ERCF includes an additional on-the-top overall effectiveness adjustment OEA, which acts like a capital relief haircut.
Both the proposed rule and the current ERCF utilize the same methodology when accounting for the effectiveness of loss sharing on tranche M1. In particular, both methods adjust the Enterprises exposure amount on tranche M1 to reflect the retention of some of the counterparty credit risk that was nominally transferred to the counterparty. To do so, the methods adjust effectiveness for: i Uncollateralized unexpected loss UnCollatUL; and ii uncollateralized
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risk-in-force above stress loss SRIF.
The approaches differ in their capitalization of SRIF. The proposed rule would capitalize SRIF at a 5% risk weight and the current ERCF capitalizes SRIF at a 10% risk weight, where the difference reflects the different risk weight floors.
For the illustrative CRT, the counterparty haircut is 5.2% as per the ERCFs single-family CP haircuts, UnCollatUL is 42.5%, and SRIF is 37.5%. The proposed rules LTEA on tranche M1 would be 96.5%, which when rounded, is the same figure for LTEA under the current ERCF.
LSEA from the proposed rule:

E:FRFM27SEP1.SGM

27SEP1

EP27SE21.004

lotter on DSK11XQN23PROD with PROPOSALS1

EL$
$2.Sm AggEL% = 100% AggUPB$ = 100% $l000m = 0.25%.