The upper tranche boundary that specifies, in addition to the lower tranche boundary (attachment point), a collateralized debt obligation tranche (CDO tranche) or any similar structure (a CLO tranche). Specifically, a CDO tranche is specified by its attachment and exhaustion (detachment) points as percentages of the total pool of collateral. The CDO tranche loss arises when the cumulative collateral loss exceeds the tranche’s attachment point. The exhaustion point corresponds to the amount of pool losses that will completely wipe out the respective tranche.

The exhaustion point is the maximum of pool-level losses at which a given tranche becomes liable for losses. In other words, the exhaustion point is the level of subordination below which a given tranche stands. For the holder of a tranche, the exhaustion point shows the percentage of the structure that will absorb losses after the tranche in question starts to be affected.

For example, a tranche with a exhaustion point below 10% of the pool size will be fully wiped out when the common risk factor reaches its critical level. For such a tranche, the regulatory capital is 1-for-1 correlated with the risk exposure.