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

    EBA Updates Filing Rules for Supervisory Reporting

    The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    EBA Publishes Standards on Disclosure of Investment Policy Under IFR

    The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).

    October 19, 2021 WebPage Regulatory News
    News

    APRA Finalizes Guidance for New Prudential Standard on Remuneration

    The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.

    October 18, 2021 WebPage Regulatory News
    News

    OCC Updated LIBOR Self-Assessment Tool for Banks

    The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR).

    October 18, 2021 WebPage Regulatory News
    News

    TCFD Updates Guidance for Financial Disclosures on Climate Risk

    The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

    October 14, 2021 WebPage Regulatory News
    News

    BCBS Report Examines Progress on Adoption of Basel III Framework

    The Basel Committee on Banking Supervision (BCBS) published the progress report on adoption of the Basel III regulatory framework in member jurisdictions.

    October 14, 2021 WebPage Regulatory News
    News

    ACPR Implements Updates Related to DPM Version 3.1

    The French Prudential Supervisory Authority (ACPR) has implemented, in its information system, updates linked to the Data Point Model (DPM) version 3.1.

    October 14, 2021 WebPage Regulatory News
    News

    EBA Note Examines Transition Risks of Benchmark Rates

    The European Banking Authority (EBA) published a thematic note that aims to identify and raise awareness of the transition risks of benchmark rates, as the London Interbank Offered Rate (LIBOR) and the Euro Overnight Index Average (EONIA) are close to being phased out.

    October 14, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7571