Recently, the OCC issued a form interpretive letter concerning the regulatory capital treatment of a bank’s exposures to a Special Purpose Vehicle (SPV). The OCC clarified that, under its regulatory capital rule, the bank’s exposures to the SPV do not qualify as securitization exposures. Instead, they should be treated as corporate exposures and subject to the general credit risk framework outlined in subparts D and E of the capital rule.

The letter elaborated on what constituted a securitization exposure. It stated that for an exposure to be considered a traditional securitization, certain criteria must be met, including that the underlying exposures must be financial, the performance of the securitization exposures must depend on the underlying exposures, and an operating company must not own the underlying exposures.

In the case of the company in question, which transferred a mix of assets, including service contracts, intellectual property, software, and physical assets into the SPV, these criteria were not met. In particular, the OCC found that the performance of the bank’s exposure to the SPV depends in part on the company’s ability to service contracts rather than solely depending on the customer’s creditworthiness. Therefore, the OCC concluded that the bank’s exposures to the SPV must be treated as corporate and wholesale exposures and assigned the appropriate risk weight.