Featured Product

    ISDA, SIFMA, ABA, BPI, and FIA Submit Comments on Proposed SA-CCR

    March 18, 2019

    ISDA, Securities Industry and Financial Markets Association (SIFMA), American Bankers Association (ABA), Bank Policy Institute (BPI), and Futures Industry Association (FIA) submitted comments regarding the proposed rule issued by US Agencies (FDIC, FED, and OCC) to implement the standardized approach for counterparty credit risk (SA-CCR) as a replacement for the current exposure method (CEM) in the U.S. capital rules. The Associations generally support the move from CEM to a more risk-based measure and believe that an appropriately calibrated version of SA-CCR would be a major improvement.

    The comment letter, however, expresses concerns with the impact of the proposal on the derivatives market, particularly equity and commodity derivatives. In the case of commodities, the proposal goes beyond the global standards set by BCBS and would result in a higher capital charge. This would create an uneven playing field for market participants across jurisdictions and adversely impact the ability of commercial end-users to hedge risk. Data collected by the Associations indicate the proposal would result in a 50% increase in risk-weighted assets for transactions with commercial end users when compared to CEM.

    As laid out in the comment letter, the Associations’ data diverges significantly from the data used and cited by the US Agencies in the proposed rule. However, the Associations’ data show that exposure at default would remain flat and counterparty credit risk default risk-weighted assets would increase by 30% when compared to CEM. In their letter, the Associations note that this divergence warrants further analysis to avoid negative impact on the liquidity and functioning of capital markets. Based on the new data, the Associations specifically urge the US Agencies to:

    • Reconsider the calibration for commodity and equity derivatives by recalibrating the supervisory factors of the proposal. Based on data collected by the Associations, supervisory factors of the proposal would result in a 70% increase in risk-weighted assets for commodity derivatives and a 75% increase in risk-weighted assets for equity derivatives when compared to CEM. If recalibration is not feasible, the Associations urge the US Agencies to, at a minimum, revert to the supervisory factors for commodity derivatives in the BCBS standards. 
    • Provide a more risk-sensitive treatment of initial margin that accounts for initial margin as a mitigant to counterparty credit exposure.
    • Reconsider the application and calibration of the alpha factor to avoid overstating the risk of derivatives.
    • Avoid any disproportional impact on the cost of doing business for commercial end-users that may result from reduced hedging.
    • Allow for netting of all transactions covered by an agreement that satisfies the requirements for qualifying master netting agreements under the existing U.S. capital rules.
    • Ensure SA-CCR does not negatively impact client clearing.

    The Associations have raised a number of these concerns in connection with the BCBS standards for SA-CCR and in response to the implementation of SA-CCR outside the U.S. The comment letter urges the US Agencies to address these issues in their final rulemaking and coordinate with their non-U.S. counterparts at the Basel level to ensure global consistency. 

     

    Related Links

    Keywords: International, Americas, US, Banking, Securities, Basel III, SA-CCR, Risk-Weighted Assets, CEM, Standardized Approach, Regulatory Capital, OTC Derivative, US Agencies, ISDA

    Featured Experts
    Related Articles
    News

    Regulators Fine Goldman Sachs for Risk Management Failures

    FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).

    October 23, 2020 WebPage Regulatory News
    News

    Canada Hosts International Conference of Banking Supervisors

    BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.

    October 22, 2020 WebPage Regulatory News
    News

    FCA Proposes More Measures to Help Insurance Customers Amid Crisis

    FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.

    October 21, 2020 WebPage Regulatory News
    News

    EBA Issues Opinion to Address Risk Stemming from Legacy Instruments

    EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.

    October 21, 2020 WebPage Regulatory News
    News

    ESRB Publishes Non-Bank Financial Intermediation Risk Monitor for 2020

    ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).

    October 21, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Policy Statement Amending Benchmarks Regulation

    HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.

    October 21, 2020 WebPage Regulatory News
    News

    APRA Initiates Action Against a Bank for Liquidity Compliance Breach

    APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.

    October 21, 2020 WebPage Regulatory News
    News

    PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2

    PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule to Reduce Impact of Large Bank Failures

    US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule on Net Stable Funding Ratio Requirements

    US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.

    October 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6004