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, Federal Reserve Board and FDIC proposal allowing "advanced-approaches" banking organizations to use an alternative approach for calculating derivative exposures was published in the Federal Register.
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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