Comments will be due Feb. 15 on a proposal – first announced Oct. 30 – to implement a new approach under regulatory capital rules for financial firms to use in measuring counterparty credit risk posed by derivative contracts, and just published in the Federal Register.
Out for a 60-day comment period, the proposal, issued jointly by the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC), would replace the current exposure methodology (CEM) as an additional methodology for calculating advanced approaches total risk-weighted assets under the capital rule. According to the notice, an advanced approaches banking organization also would be required to use SA-CCR to calculate its standardized total risk-weighted assets; by contrast, a non-advanced approaches banking organization could elect to use either CEM or SA-CCR to make that calculation.
The proposal would also modify other aspects of the capital rule to account for the proposed implementation of SA-CCR.
Given systems changes required of advanced approaches banking organizations under this proposal, the agencies propose to give such institutions until July 1, 2020, to implement SA-CCR. They could also adopt SA-CCR as of the effective date of the final rule. The technical revisions in this proposal, as described in section V of the proposal’s supplementary information, would become effective as of the effective date of the final rule.
Non-advanced approaches banking organizations would not be required to use SA-CCR, but they would have the option to do. However, if they use SA-CCR to calculate their exposure amounts for noncleared derivative contracts, they would also be required to use it to calculate the exposure amounts for cleared derivative contracts and for calculating the risk-weighted asset amounts of their default fund contributions.