US Agencies (FDIC, FED, and OCC) announced a final rule updating the way certain banking organizations are required to measure counterparty credit risk for derivative contracts under their regulatory capital rules. The rule implements a new approach—the standardized approach for counterparty credit risk (SA-CCR)—for calculating the exposure amount of derivative contracts under the agencies’ regulatory capital rule. The final rule will be effective on April 01, 2020, with a mandatory compliance date of January 01, 2022 for advanced approaches banking organizations.
Under the final rule, an advanced approaches banking organization may use SA-CCR or the internal models methodology to calculate the advanced approaches total risk-weighted assets and must use SA-CCR, instead of the current exposure methodology, to calculate its standardized total risk-weighted assets. A non-advanced approaches banking organization may use the current exposure methodology or SA-CCR to calculate its standardized total risk-weighted assets. The final rule also implements SA-CCR in other aspects of the capital rule. The final rule requires an advanced approaches banking organization to use SA-CCR to determine the exposure amount of derivative contracts included in the total leverage exposure of a banking organization, the denominator of the supplementary leverage ratio. In addition, the final rule incorporates SA-CCR into the cleared transactions framework and makes other amendments with respect to cleared transactions.
As a result of this final rule, the agencies have proposed to clarify the reporting instructions for the FFIEC 031, FFIEC 041, and FFIEC 051 Call Reports and FFIEC 101 for regulatory capital reporting for institutions subject to the advanced capital adequacy framework. OCC and FDIC expect to clarify the reporting instructions for DFAST 14A and FED expects to clarify the reporting instructions for forms FR Y–9C on the consolidated financial statements for holding companies, FR Y–14A and FR Y–14Q on capital assessments and stress testing, and FR Y-15 on banking organization systemic risk report, as appropriate, to reflect the changes to the regulatory capital rule related to this final rule. FED expects to address the use of SA-CCR for purposes of the FR Y-15 in a separate process. Until such time, banking organizations that must report the FR Y-15 should continue to use the current exposure method to determine the potential future exposure of their derivative contracts for purposes of completing line 11(b) of Schedule B, consistent with the current instructions to the form.This rule does not impose any reporting, recordkeeping, and other compliance requirements onto small entities.
The US Agencies, on October 30, 2018, had launched a consultation on the implementation of SA-CCR. The agencies received approximately 58 comments on the proposal, with the respondents including banking organizations, trade groups, members of Congress, and advocacy organizations. While generally consistent with the proposal, the final rule has been revised in response to the comments received. The changes include revised capital requirements for derivatives contracts with commercial end-user counterparties. The final rule removes the alpha factor of 1.4 from the exposure amount calculation for derivative contracts with commercial end-user counterparties.
Respondents to the consultation also criticized the approach to recognition of collateral provided to support a derivative contract for purposes of the supplementary leverage ratio. In response to the concerns of these respondents and to maintain consistency with changes to the BCBS leverage ratio standard that occurred during the comment period, the final rule allows for greater recognition of collateral in the calculation of total leverage exposure related to the client-cleared derivative contracts.
Effective Date: April 01, 2020
Keywords: Americas, US, Banking, Basel III, SA-CCR, Advanced Approaches, Derivatives, Regulatory Capital, Leverage Ratio, Reporting, US Agencies
Previous ArticleUS Agencies Finalize Changes to Rule on Supplementary Leverage Ratio
BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).
EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).
FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.
IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.
FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).
EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.
ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector.
PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.
US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.
IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.