Agencies Finalize Counterparty Credit Risk Proposal for Derivatives

The FDIC, OCC and the Federal Reserve today finalized a new approach for calculating the exposure of derivative contracts under the regulatory capital rule. The standardized approach for counterparty credit risk, or SA-CCR, would serve as an alternative to the current exposure methodology for calculating advanced approaches total risk-weighted assets under the capital rule.

Banks subject to the advanced approaches will 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 final rule will also incorporate SA-CCR into capital requirements for cleared transactions and in the supplementary leverage ratio. It will be effective April 1, 2020, with a mandatory compliance date of Jan. 1, 2022, for advanced approaches organizations.

The final rule includes several changes from the initial proposals to address concerns raised by industry stakeholders, including the American Bankers Association. Specifically, the final rule makes adjustments to the exposure amount calculation for derivative contracts with commercial end-user counterparties and the netting treatment for settled-to-market derivative contracts. It also allows for greater recognition of collateral in the calculation of total leverage exposure relating to client-cleared derivative contracts.