Featured Product

    US Agencies Update Rule on Derivative Contracts Exposure Calculation

    November 19, 2019

    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. 

     

    Related Links

    Effective Date: April 01, 2020

    Keywords: Americas, US, Banking, Basel III, SA-CCR, Advanced Approaches, Derivatives, Regulatory Capital, Leverage Ratio, Reporting, US Agencies

    Featured Experts
    Related Articles
    News

    EC Regulation Sets Out Standards for Reporting and Disclosure of MREL

    EC published the Implementing Regulation 2021/763 that lays down implementing technical standards for supervisory reporting and public disclosure of the minimum requirement for own funds and eligible liabilities (MREL).

    May 12, 2021 WebPage Regulatory News
    News

    APRA Decides to Standardize Submission Date for Quarterly Reporting

    APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.

    May 11, 2021 WebPage Regulatory News
    News

    ECB Working Group Publishes Recommendations on EURIBOR Fallbacks

    The private sector working group of ECB on euro risk-free rates published the recommendations to address events that would trigger fallbacks in the Euro Interbank Offered Rate (EURIBOR)-related contracts, along with the €STR-based EURIBOR fallback rates (rates that could be used if a fallback is triggered).

    May 11, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Supporting Documentation for Reporting by Banks

    Bundesbank published a list of "EntryPoints" that are accepted in its reporting system; the list provides taxonomy version and name of the module against each EntryPoint.

    May 11, 2021 WebPage Regulatory News
    News

    EBA Publishes Phase 1 of Reporting Framework 3.1

    EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).

    May 10, 2021 WebPage Regulatory News
    News

    APRA to Finalize Capital Adequacy Standard Revisions by January 2022

    Asia Pacific Australia Banking APS 111 Capital Adequacy Regulatory Capital Basel RBNZ APRA

    May 10, 2021 WebPage Regulatory News
    News

    ESMA Issues Guidelines on Outsourcing to Cloud Service Providers

    ESMA published the final guidelines on outsourcing to cloud service providers.

    May 10, 2021 WebPage Regulatory News
    News

    EBA Publishes Data on Deposit Guarantee Schemes

    EBA published annual data for two key concepts and indicators in the Deposit Guarantee Schemes (DGS) Directive—available financial means and covered deposits.

    May 10, 2021 WebPage Regulatory News
    News

    OSFI Sets Out Plan for Future Guidance on Managing Technology Risk

    OSFI has set out the schedule for release of draft guidance on the management of technology risks by federally regulated financial institutions and private pension plans.

    May 10, 2021 WebPage Regulatory News
    News

    MAS Updates Housing Loan Rules, Proposes Corporate Governance Guidance

    MAS updated rules for new housing loans by banks and finance companies.

    May 10, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6964