SARB on Calculation of Derivative Exposure to Determine Leverage Ratio
SARB published a Directive (D7/2020) that specifies requirements for the calculation of derivative exposure amount for determining the leverage ratio. The SARB Prudential Authority had earlier proposed amendments to the Regulations relating to Banks (Regulations) to replace the current exposure method with the standardized approach for measuring counterparty credit risk exposures (SA-CCR) for calculating the relevant amount related to a bank’s derivative exposures for risk-based capital requirements. These proposed changes require the Prudential Authority to specify requirements for the calculation of the derivative exposures for the purposes of determining the leverage ratio. Banks must comply with this Directive simultaneously with the implementation of the amended Regulations that incorporate the SA-CCR methodology.
Regulation 38(15) of the Regulations requires banks to determine the leverage ratio to supplement the relevant risk-based capital requirements of banks. This includes the calculation of the qualifying tier 1 capital and reserve funds and the exposure measure. BCBS published the final framework for SA-CCR in March 2014. The SA-CCR is a new method of calculating exposure at default for counterparty credit risk, which arises from over the counter derivatives, exchange-traded derivatives, and long-settlement transactions. In accordance with the provisions of section 6(6) of the Banks Act, 1990, banks are hereby directed to calculate exposures associated with all derivative transactions, including where a bank sells protection using a credit derivative, through the application of the formula specified in the Directive (D7/2020).
In case of a derivative exposure covered by an eligible bilateral netting contract or agreement that complies with the relevant requirements specified in regulation 23(18)(b) of the amended Regulations that incorporated the requirements related to the SA-CCR, a bank shall calculate its exposure in respect of the relevant set of derivative exposures covered by the said contract or agreement as the sum of the net mark-to-market replacement cost, plus the potential future exposure. For derivative transactions not covered by an eligible bilateral netting contract or an agreement as specified in regulation 23(18)(b) of the amended Regulations that incorporated the requirements related to SA-CCR, the amount to be included in the leverage ratio exposure measure must be determined separately for each transaction. The Directive also specifies requirements related to collateral, cash variation margin, bank as a clearing member, and written credit derivative.
Related Links
Keywords: Middle East and Africa, South Africa, Banking, Leverage Ratio, Basel, Derivatives, SA-CCR, Counterparty Credit Risk, SARB
Previous Article
APRA Consults on Revisions to Capital Framework for BanksRelated Articles
FDIC Proposes Amendments to Real Estate Lending Standards
FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.
MAS Amends Notices on Risk-Based Capital Adequacy Requirements
MAS revised Notices 637 and 1111 on the risk-based capital adequacy requirements, along with Notice 656 on the exposures to single counterparty groups for banks incorporated in Singapore.
ISDA Consults on Implementation of Fallbacks for Certain Swap Rates
ISDA is consulting on the implementation of fallbacks for the sterling LIBOR ICE Swap Rate and for the USD LIBOR ICE Swap Rate.
US Agencies Set Out Unified Agenda for Planned Regulatory Actions
SEC announced that the Office of Information and Regulatory Affairs released the Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions.
BIS and BoE Launch Innovation Hub in London
BIS and BoE launched the BIS Innovation Hub Center in London, which is the fourth new Innovation Hub Centre to be opened in the past two years.
ESRB Recommends Reciprocation of Certain Macroprudential Measures
ESRB published recommendations on the reciprocation of macro-prudential measures in Belgium, France, Luxembourg, Norway, and Sweden.
MAS Amends Regulatory Notices Applicable to Banks in Singapore
MAS revised multiple notices that are applicable to banks and merchant banks in Singapore and have been issued pursuant to the Banking Act (Cap 19).
EC Publishes Regulation on Key Aspects of Implementation of SA-CCR
EC published the Delegated Regulation 2021/931, which supplements the Capital Requirements Regulation (CRR or Regulation 575/2013) with regard to the regulatory technical standards specifying the method for identifying derivative transactions with one or more than one material risk driver.
BCBS Consults on Prudential Treatment of Cryptoasset Exposures
BCBS is consulting on preliminary proposals for the prudential treatment of cryptoasset exposures of banks.
EBA Revises List of Validation Rules for Reporting
EBA issued a revised list of validation rules under the implementing technical standards on supervisory reporting.
