SARB on Threshold for Applying Jurisdictional Reciprocity in CCyB
SARB issued a directive (D2/2018) on the materiality threshold in respect of exposure to a foreign jurisdiction in applying jurisdictional reciprocity in the countercyclical capital buffer calculation. The directive is applicable to all banks, controlling companies, branches of foreign institutions, eligible institutions, and auditors of banks or controlling companies.
The directive requires banks to calculate, at least on a quarterly basis, the required CCyB by allocating exposures to the relevant jurisdictions, based on the following specified thresholds:
- When risk-weighted assets (RWAs) related to private sector credit exposures to a foreign jurisdiction amount to 2% or more of the total RWAs relating to private sector credit exposures of the bank, then those exposures are treated as foreign exposures and are allocated to that specific foreign jurisdiction when calculating CCyB requirements.
- When RWAs on private sector credit exposures to a foreign jurisdiction amount to less than 2% of total RWAs relating to private sector credit exposures, those exposures shall be treated as local (home jurisdiction) exposures for the calculating CCyB.
- When aggregate amount of all RWA on private sector credit exposures to foreign jurisdictions individually amounting to less than 2% of total RWAs relating to private sector credit exposures, amount to 10% or more of the total RWAs relating to private sector credit exposures of the bank, the bank must include in its calculation the CCyB add-on in respect of the three most signification foreign jurisdiction exposures where the foreign jurisdictions have a CCyB requirement in place.
The specified materiality thresholds shall be applied at a bank solo, consolidated bank, consolidated controlling company, and foreign entity level. In line with the BCBS document on consolidated and enhanced framework for Pillar 3 disclosure requirements dated March 2017, the methodology for geographical allocation used as well as the use of materiality thresholds must be disclosed by banks in Template CCyB1, as contained the document. Through this process, credit exposures to a private-sector entity located in any given jurisdiction will attract the same capital buffer requirement, irrespective of the location of banking providing the credit.
Related Links
Keywords: Middle East and Africa, South Africa, Banking, CCyB, Reciprocity, Credit Exposures, Disclosures, SARB
Related Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
ECB is Conducting First Cyber Risk Stress Test for Banks
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
EU and UK Agencies Issue Updates on Final Basel III Rules
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards