The OCC, the Federal Reserve Board and the FDIC (collectively, the "agencies") will implement a standardized approach to calculating the exposure amount of derivative contracts under the "regulatory capital rule'"
As previously covered, the standardized approach for counterparty credit risk ("SA-CCR") will replace the current exposure methodology ("CEM"). Pursuant to the final rule, (i) advanced-approaches banking organizations will be required to use SA-CCR to calculate their standardized total risk-weighted assets and (ii) non-advanced-approaches banking organizations will be allowed to use either CEM or SA-CCR when calculating standardized total risk-weighted assets.
The final rule contains various modifications intended to address concerns raised by commenters, such as:
removing the alpha factor of 1.4 from the exposure amount calculation for derivative contracts to reduce the exposure amount by approximately 29 percent;
allowing banking organizations to treat derivative contracts within the same netting set as settled-to-market; and
recognizing the collateral in the total leverage exposure calculation concerning client-cleared derivative contracts.
The rule's effective date is April 1, 2020, with a mandatory compliance date of January 1, 2022 for advanced-approaches organizations.
The Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corporation proposed an alternative approach for calculating derivative exposures under regulatory capital rules.
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