Banking agencies finalize updated methodology for counterparty credit risk measurement (SA-CCR)

Banking regulators this week finalized the standardized approach for measuring counterparty credit risk (SA-CCR), but only after making some changes in response to commenters.

According to the agencies’ Tuesday announcement, this updated methodology – adopted by the Federal Deposit Insurance Corp. (FDIC), Federal Reserve Board, and Office of the Comptroller of the Currency (OCC) – better reflects improvements made to the derivatives market since the 2007-2008 financial crisis such as central clearing and margin requirements. The SA-CCR would replace the “current exposure methodology” for large, internationally active banking organizations, while other, smaller banking organizations could voluntarily adopt SA-CCR.

Changes from the October 2018 proposal include revised capital requirements for derivatives contracts with commercial end-user counterparties. This change in particular will reduce the exposure amount of such derivative contracts by roughly 29%, in comparison to similar derivative contracts with a counterparty that is not a commercial end-user, the regulators said in the final rule notice. (Other changes relate to the netting treatment for settled-to-market derivative contracts and the recognition of collateral provided to support a derivative contract for purposes of the supplementary leverage ratio.)

“The agencies estimate that the final rule will not materially change the current amount of capital in the banking system, though the effect on individual banking organizations will vary depending on their portfolios,” they said.

The final rule is set to take effect April 1, 2020, with a mandatory compliance date of Jan. 1, 2022.

Federal bank regulatory agencies finalize rule to update calculation of counterparty credit risk for derivative contracts

Be the first to comment

Leave a Reply

Your email address will not be published.