Banking Agencies Propose Updating Calculation of Derivative Contract Exposure Amounts

The Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corporation proposed allowing "advanced-approaches" banking organizations (i.e., those with $250 billion or more in total consolidated assets, or $10 billion or more in on-balance sheet foreign exposure) to use an alternative approach for calculating derivative exposures under regulatory capital rules.

The proposed approach - the standardized approach for counterparty credit risk ("SA-CCR") - would replace the current exposure methodology ("CEM"). If adopted, the proposal would (i) require advanced-approaches banking organizations to use SA-CCR to calculate their standardized total risk-weighted assets by July 1, 2020 and (ii) allow non-advanced-approaches banking organizations to use either CEM or SA-CCR when calculating standardized total risk-weighted assets.

In addition, the proposal would require advanced-approaches banking organizations to use SA-CCR to determine the exposure amount of derivative contracts for calculating total leverage exposure and would amend the cleared transactions framework to include SA-CCR.

Comments on the proposal must be submitted within 60 days from the date of publication in the Federal Register.