Derivatives exposure, HVCRE, custody deposits rules slated for FDIC Board action next week

A standardized approach to calculating banks’ exposure to derivative contracts is slated for consideration Nov. 19 open meeting of the board of the federal bank deposit insurer, the agency said Tuesday.

The Federal Deposit Insurance Corp. (FDIC) Board, on its open meeting agenda, also lists (among other things) actions on the treatment of central bank deposits in firms mostly engaged in custody, safekeeping and asset servicing activities; and changes in the definition of high-volatility commercial real estate exposure (HRCRE) for capital purposes.

The derivatives contracts exposure proposal was issued in October 2018 by the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency (OCC). The proposal would update the standards financial firms would use in measuring counterparty credit risk posed by derivative contracts under regulatory capital rules. The agencies, in their announcement, said the proposed rule would provide the “standardized approach for measuring counterparty credit risk” (also known as “SA-CCR”) as an alternative approach to the agencies’ current exposure methodology (CEM) for calculating derivative exposure under the agencies’ regulatory capital rules.

The agencies said the proposed updates are designed to “better reflect the current derivatives market and incorporate risks observed during the 2007-2008 financial crisis.”

As proposed, the standards would require that firms that have $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure (known as “advanced approaches” banking organizations) use SA-CCR for purposes of calculating both standardized total risk-weighted assets and the supplementary leverage ratio, the agencies said. Non-advanced approaches banking organizations would be allowed to use either CEM or SA-CCR to determine the exposure amount for derivative contracts.

The board is expected to finalize its rule during its Nov. 19 open meeting, which will be webcast live. The full board meeting agenda follows.

Summary agenda

  • Disposition of Minutes of a Board of Directors’ Meeting Previously Distributed.
  • Memorandum and resolution re:  Regulatory Capital Rule: Revisions to the Supplementary Leverage Ratio to Exclude Certain Central Bank Deposits of Banking Organizations Predominantly Engaged in Custody, Safekeeping and Asset Servicing Activities.
  • Memorandum and resolution re:  Regulatory Capital Treatment for High Volatility Commercial Real Estate (“HVCRE”) Exposures.
  • Memorandum and resolution re:  Final Rule Removing Transferred OTS Regulation, Part 390 Subpart M – Deposits.
  • Memorandum and resolution re:  Notice of Final Rulemaking Re: The Use and Remittance of Certain Assessment Credits.
  • Memorandum and resolution re:  Establishment of the FDIC Advisory Committee of State Regulators.
  • Reports of actions taken pursuant to authority delegated by the Board of Directors and reports of the Office of Inspector General.

Discussion agenda

  • Memorandum and resolution re:  Regulatory Capital Rule: Standardized Approach for Calculating the Exposure Amount of Derivative Contracts.
  • Memorandum and resolution re:  Notice of Proposed Rulemaking on Conversion of the Statement of Policy for Section 19 of the Federal Deposit Insurance Act to a Regulation.
  • Memorandum and resolution re:  Notice of Proposed Rulemaking on Federal Interest Rate Authority.

FDIC Nov. 19 open meeting agenda

Federal Register notice of meeting