[Federal Register Volume 85, Number 62 (Tuesday, March 31, 2020)]
[Rules and Regulations]
[Pages 17721-17722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06755]


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DEPARTMENT OF TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket ID OCC-2018-0030; RIN 1557-AE44]

FEDERAL RESERVE SYSTEM

12 CFR Part 217

[Regulation Q; Docket No. R-1629; RIN 7100-AF22]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 324

RIN 3064-AF43


Standardized Approach for Calculating the Exposure Amount of 
Derivative Contracts

AGENCY: Office of the Comptroller of the Currency, Treasury; the Board 
of Governors of the Federal Reserve System; and the Federal Deposit 
Insurance Corporation.

ACTION: Notification.

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SUMMARY: In light of recent economic disruptions caused by the COVID-19 
virus and recent volatility in U.S. financial markets, the Office of 
the Comptroller of the Currency, the Board of Governors of the Federal 
Reserve System, and the Federal Deposit Insurance Corporation 
(collectively, the agencies) are issuing a document to allow depository 
institutions and depository institution holding companies to implement 
the final rule titled Standardized Approach for Calculating the 
Exposure Amount of Derivative Contracts (SA-CCR rule) for the first 
quarter of 2020, on a best efforts basis.

DATES: Effective March 31, 2020.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Margot Schwadron, Director, or Guowei Zhang, Risk Expert, 
Capital and Regulatory Policy, (202) 649-6370; or Carl Kaminski, 
Special Counsel, Kevin Korzeniewski, Counsel, Daniel Perez, Senior 
Attorney, Chief Counsel's Office, (202) 649-5490; the Office of the 
Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.
    Board: Constance M. Horsley, Deputy Associate Director, (202) 452-
5239;

[[Page 17722]]

Teresa A. Scott, Manager, (202) 475-6316; Eusebius Luk, Senior 
Financial Institution Policy Analyst I, (202) 452-2874; Division of 
Supervision and Regulation; or Benjamin W. McDonough, Assistant General 
Counsel, (202) 452-2036; Mark Buresh, Senior Counsel, (202) 452-5270; 
Jonah Kind, Senior Attorney, (202) 452-2045; Legal Division, Board of 
Governors of the Federal Reserve System, 20th and C Streets NW, 
Washington, DC 20551. For the hearing impaired only, Telecommunication 
Device for the Deaf, (202) 263-4869.
    FDIC: Bobby R. Bean, Associate Director, [email protected]; Irina 
Leonova, Acting Chief, Capital Strategies Section, [email protected]; 
Peter Yen, Senior Policy Analyst, [email protected], Capital Markets 
Branch, Division of Risk Management Supervision, (202) 898-6888; or 
Michael Phillips, Counsel, [email protected]; Catherine Wood, Counsel, 
[email protected]; Supervision Branch, Legal Division, Federal Deposit 
Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The Office of the Comptroller of the 
Currency, the Board of Governors of the Federal Reserve System, and the 
Federal Deposit Insurance Corporation (collectively, the agencies) 
recently adopted the final rule titled Standardized Approach for 
Calculating the Exposure Amount of Derivative Contracts (SA-CCR 
rule).\1\ The SA-CCR rule implements a new approach--the standardized 
approach for counterparty credit risk (SA-CCR methodology)--for 
calculating the exposure amount of derivative contracts under the 
agencies' regulatory capital rule (capital rule). The SA-CCR rule also 
revises other aspects of the capital rule related to total leverage 
exposure (the denominator of the supplementary leverage ratio) and the 
cleared transactions framework.
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    \1\ See 85 FR 4362 (January 24, 2020).
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    The agencies are permitting a banking organization the flexibility 
to implement the SA-CCR rule, including the SA-CCR methodology and the 
other amendments described in the SA-CCR rule, one quarter early and on 
a best efforts basis if the banking organization chooses to do so.\2\
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    \2\ The SA-CCR rule had an original effective date of April 1, 
2020, the first day of the calendar quarter following publication in 
the Federal Register, pursuant to 12 U.S.C. 4802(b)(1). Banking 
organizations may elect to comply before the effective date pursuant 
to 12 U.S.C. 4802(b)(2).
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    Recent events have suddenly and significantly impacted financial 
markets. The spread of the COVID-19 virus has disrupted economic 
activity in many countries. In addition, financial markets have 
experienced significant volatility. The magnitude and persistence of 
the overall effects on the economy remain highly uncertain. The 
notification should help to mitigate the impact of recent dislocations 
in the U.S. economy as a result of COVID-19. By allowing early adoption 
of the SA-CCR rule, the notification allows banking organizations to 
implement the SA-CCR methodology's more risk-sensitive measurement of 
the exposure amounts of derivative contracts one quarter earlier than 
the SA-CCR rule provided. For purposes of any early adoption of the SA-
CCR rule, the agencies understand that banking organizations are in the 
process of refining their systems to implement the SA-CCR rule and, 
therefore, for purposes of the first quarter, early adoption would be 
on a best efforts basis.
    The SA-CCR rule was issued with an effective date of April 1, 2020. 
The SA-CCR rule provides banking organizations the option to adopt the 
SA-CCR methodology for derivative contracts beginning on April 1, 2020. 
For advanced approaches banking organizations, adoption of the SA-CCR 
methodology is mandatory beginning January 1, 2022. As a result, by no 
later than January 1, 2022, advanced approaches banking organizations 
must use the SA-CCR methodology for purposes of standardized total 
risk-weighted assets and the supplementary leverage ratio, and must use 
either the SA-CCR methodology or the internal models methodology for 
purposes of advanced approaches total risk-weighted assets. The SA-CCR 
rule provides non-advanced approaches banking organization the option 
to adopt the SA-CCR methodology for purposes of standardized total 
risk-weighted assets and, if applicable, the supplementary leverage 
ratio, beginning April 1, 2020. As a result, banking organizations 
could adopt the SA-CCR methodology as early as April 1, 2020, and 
advanced approaches banking organizations are required to adopt the SA-
CCR methodology beginning January 1, 2022.
    The SA-CCR rule also included several other amendments to the 
capital rule that are effective as of April 1, 2020. These amendments 
include, among others: (1) A 2 percent or a 4 percent risk-weight for 
cash collateral posted to a qualifying central counterparty (QCCP) 
subject to certain requirements; (2) the ability of a clearing member 
banking organization to recognize client collateral posted to a central 
counterparty (CCP) under certain circumstances; (3) a zero percent 
risk-weight for the CCP-facing portion of a transaction where a 
clearing member banking organization does not guarantee the performance 
of the CCP to the clearing member's client; and (4) the ability of a 
clearing member banking organization to apply a 5-day holding period 
for collateral associated with client-facing derivatives for purposes 
of the collateral haircut approach.
    The agencies are allowing banking organizations to implement the 
SA-CCR rule, including the SA-CCR methodology and the other amendments, 
on a best efforts basis immediately. A banking organization that elects 
to adopt the SA-CCR methodology must adopt the SA-CCR methodology for 
all derivative contracts; it cannot implement the SA-CCR methodology 
for a subset of its derivative contracts. However, a banking 
organization may adopt some of the other amendments described in the 
SA-CCR rule regardless of whether it chooses to early adopt the SA-CCR 
methodology.\3\
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    \3\ Certain of the other amendments, such as the ability of a 
banking organization to use SA-CCR for the calculation of exposure 
under the OCC's lending limits rule, are dependent on the banking 
organization adopting the SA-CCR methodology.
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    The agencies expect to make related amendments to the Call Report, 
FFIEC 101, and FR Y-9C, as applicable, filed as of March 31, 2020, to 
reflect this notification. These amendments will be addressed in a 
separate Federal Register document. Adopting the SA-CCR rule on a best 
efforts basis for the first quarter of 2020 is optional for all banking 
organizations subject to the capital rule. The SA-CCR rule effective 
date will remain April 1, 2020, and the mandatory compliance date will 
remain January 1, 2022.

Morris R. Morgan,
First Deputy Comptroller, Office of the Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System.
Ann Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.

    By order of the Board of Directors.
    Dated at Washington, DC, on or about March 26, 2020.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2020-06755 Filed 3-30-20; 8:45 am]
 BILLING CODE P