August 8, 2013
Authored by: Jerry Blanchard
As we previously discussed, the Georgia Department of Banking and Finance has confirmed that Georgia charted banks will be able to use any of the methodologies permissible for national banks when determining credit exposure for derivatives, subject to review through the examination process as to their appropriate implementation. For those elements of the OCC methodology requiring the written approval of the OCC prior to implementation, the Department’s written approval would likewise be required prior to implementation by Georgia state-chartered banks.
Notwithstanding this broad permission, we think that most community banks will find the “Conversion Factor Matrix Method” to be less burdensome and easier to calculate. Under the Conversion Factor Matrix Method, credit exposure is calculated as follows:
Credit Exposure equals Current Credit Exposure plus Potential Future Exposure [12 CFR § 32.9(b)(1)(i)]
The exposure will remain fixed at the potential future credit exposure of the derivative transaction as determined at the execution of the transaction. The conversion matrix is set out in the legal lending limit rule adopted by the OCC and set out in the updated CFR.