Bank Capital Requirements: Federal Bank Regulators Propose Standardized Approach for Calculating the Exposure Amount of Derivative Contracts

Sullivan & Cromwell LLP - November 26, 2018
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On October 30, the Federal Reserve Board, the FDIC and the OCC issued a proposed rule that would implement a new standardized approach for counterparty credit risk (“SA-CCR”) for calculating the exposure amount of derivative contracts under the agencies’ capital rules.   The agencies note that, as proposed, SA-CCR is intended to improve the risk-sensitivity and calibration relative to the existing U.S. standardized approach, the current exposure method, which was initially adopted in 1989 and last significantly updated in 1995.   The proposed SA-CCR would be “substantially consistent” with the Basel Committee on Banking Supervision’s international standard, which became effective in 2017 and has been adopted and implemented in six jurisdictions, but not yet in the United States or the European Union.  Only banking organizations subject to the advanced approaches would be required to use the proposed SA-CCR.