Regulators Propose New Approach for Calculating Counterparty Credit Risk

The Federal Reserve, FDIC and OCC today issued a proposed rule that would establish a new approach for calculating the exposure amount of derivative contracts under the regulatory capital rule. The proposal would provide the “standardized approach for counterparty credit risk,” or SA-CCR, as an alternative to the current exposure methodology for calculating advanced approaches total risk-weighted assets under the capital rule.

The agencies noted that the SA-CCR better reflects the current derivatives market and would provide important improvements to risk sensitivity, resulting in more appropriate capital requirements.

Banks subject to the advanced approaches would be required to use SA-CCR to calculate their standardized total risk-weighted assets; banks not subject to the advanced approaches could elect to use either of the two methodologies. The proposal would also incorporate SA-CCR into capital requirements for cleared transactions and in the supplementary leverage ratio. Comments on the proposal are due 60 days after publication in the Federal Register.