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 Issues Regulation on Adjustments to K-Factor Coefficients Under IFR

    The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).

    January 20, 2022 WebPage Regulatory News
    News

    OSFI Issues Results of Pilot on Climate Risk Scenario Analysis

    The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.

    January 20, 2022 WebPage Regulatory News
    News

    ECB Issues Opinions on Green Bonds Standard and CRR Proposals

    The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.

    January 19, 2022 WebPage Regulatory News
    News

    ESRB Explores Policy Response to Risks Arising from Digitalization

    The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.

    January 18, 2022 WebPage Regulatory News
    News

    EU Authorities Address COVID-19 Reporting, MCD, and PSD2 Issues

    The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.

    January 17, 2022 WebPage Regulatory News
    News

    FI Publishes Multiple Regulatory and Reporting Updates

    The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.

    January 17, 2022 WebPage Regulatory News
    News

    BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance

    The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.

    January 16, 2022 WebPage Regulatory News
    News

    US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint

    The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.

    January 13, 2022 WebPage Regulatory News
    News

    EBA Issues Guide on Bank Resolvability, Consults on Transferability

    The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).

    January 13, 2022 WebPage Regulatory News
    News

    MFSA Publishes CRD5 Updates and Supervisory Priorities for 2022

    The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.

    January 13, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7875