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Financial Institution Letter
Regulatory Capital Rule:
New Standardized Approach for Calculating the Exposure Amount of Derivative Contracts
October 30, 2018
Notes
 

Summary:

The federal bank regulatory agencies (the agencies) have jointly issued a Notice of Proposed Rulemaking (NPR), which would amend the regulatory capital rule (capital rule) to implement a new approach for calculating the exposure amount for derivative contracts, which is called the standardized approach for counterparty credit risk (SA-CCR). The NPR also incorporates SA-CCR into the determination of exposure amount of derivatives for total leverage exposure under the supplementary leverage ratio and the cleared transaction framework under the capital rule. Further, the NPR would make technical amendments to the capital rule with respect to cleared transactions.

Statement of Applicability: This Financial Institution Letter is applicable to all FDIC-supervised institutions. However, only advanced approaches banking organizations would be required to use SA-CCR.

Highlights:

  • The NPR would: (1) replace the current exposure methodology (CEM) in the capital rule's advanced approaches with SA-CCR as an option to internal models methodology (IMM) for purposes of calculating advanced approaches total risk-weighted assets; (2) require an advanced approaches banking organization to begin using SA-CCR by July 1, 2020, in determining the exposure amount for a derivative contract for purposes of calculating its standardized total risk-weighted assets; and (3) allow a non-advanced approaches banking organization to use either CEM or SA-CCR to determine the exposure amount for its derivative contracts.
  • If a banking organization elects to use SA-CCR to determine the exposure amount for its derivative contracts, it also would be required to use SA-CCR to determine the trade exposure amount for cleared derivative contracts and default fund contributions.
  • The NPR would simplify the formula used to determine the risk-weighted asset amount for a default fund contribution to be based on the banking organization's pro rata share of the default fund.
  • Advanced approaches banking organizations would be required to use a modified version of SA-CCR to determine the exposure amount of derivative contracts for purposes of calculating total leverage exposure under the supplemental leverage ratio.
  • The NPR would make technical amendments to the capital rule with respect to cleared transactions.

Distribution:

  • FDIC-supervised Institutions

Suggested Routing:

  • Chief Executive Officer
  • Chief Financial Officer
  • Chief Risk Officer

Paper copies may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).

Additional Related Topics:

  • Capital Adequacy of FDIC-Supervised Institutions, 12 CFR Part 324 (Regulatory Capital Rules)
FIL-67-2018
Attachments
Last Updated: October 30, 2018