This story appeared in Bank Digest.
The Federal Deposit Insurance Corporation, Federal Reserve Board, and Office of the Comptroller of the Currency have issued a proposed update to their standards for how firms measure counterparty credit risk posed by derivative contracts under the agencies' regulatory capital rules. According to the joint press release, the proposed changes are designed to better reflect the current derivatives market and incorporate risks observed during the 2007-2008 financial crisis. Comments on the proposed rule must be submitted 60 days after publication in the Federal Register.
The proposal 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 for calculating derivative exposure under regulatory capital rules. The agencies believe that SA-CCR better reflects the current derivatives market and would provide important improvements to risk sensitivity, resulting in more appropriate capital requirements for derivative contracts exposure. Banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure would be required to use SA-CCR to calculate both standardized total risk-weighted assets and the supplementary leverage ratio.