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    US Agencies Propose Derivative Counterparty Credit Exposure Framework

    December 17, 2018

    US Agencies (OCC, FED, and FDIC) proposed to implement a new approach for calculating the exposure amount of derivative contracts under the regulatory capital rule. The proposed standardized approach for counterparty credit risk (SA-CCR) would replace the current exposure methodology (CEM) as an additional methodology for calculating advanced approaches total risk-weighted assets under the capital rule. Comments to the consultation should be received on or before February 15, 2019. The proposal includes a transition period, until July 01, 2020, by which time an advanced approaches banking organization must implement SA-CCR. An advanced approaches banking organization may, however, adopt SA-CCR as of the effective date of the final rule.

    An advanced approaches banking organization would be required to use SA-CCR to calculate its standardized total risk-weighted assets; however, a non-advanced approaches banking organization could elect to use either CEM or SA-CCR for calculating its standardized total risk-weighted assets. In addition, the proposal would modify other aspects of the capital rule to account for the proposed implementation of SA-CCR. The proposal would require an advanced approaches banking organization to use SA-CCR with some adjustments to determine the exposure amount of derivative contracts for calculating total leverage exposure (the denominator of the supplementary leverage ratio). The proposal would also incorporate SA-CCR into the cleared transactions framework and would make other amendments, generally with respect to cleared transactions.

    As a result of this proposed rule, the agencies would clarify the reporting instructions for the Consolidated Reports of Condition and Income (FFIEC 031, FFIEC 041, and FFIEC 051) and Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework (FFIEC 101). OCC and FDIC would clarify the reporting instructions for DFAST 14A while FED would clarify the reporting instructions for the Consolidated Financial Statements for Holding Companies (FR Y-9C), Capital Assessments and Stress Testing (FR Y-14A and FR Y-14Q), and Banking Organization Systemic Risk Report (FR Y-15) to reflect the changes to the capital rules that would be required under this proposal. The proposed introduction of SA-CCR would indirectly affect the single counterparty credit limit rule of FED, along with other rules. OCC is also proposing to update cross-references to the CEM and add SA-CCR as an option for determining exposure amounts for derivative contracts in its lending limit rules. 

     

    Related Link: Proposed Rule in Federal Register

    Keywords: Americas, US, Banking, Basel III, SA-CRR, Advanced Approaches, Standardized Approach, Regulatory Capital, Supplementary Leverage Ratio, Derivatives, US Agencies

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