Standardized Approach for Calculating the Exposure Amount of Derivative Contracts, 17721-17722 [2020-06755]

Download as PDF 17721 Rules and Regulations Federal Register Vol. 85, No. 62 Tuesday, March 31, 2020 This section of the FEDERAL REGISTER contains regulatory documents having general applicability and legal effect, most of which are keyed to and codified in the Code of Federal Regulations, which is published under 50 titles pursuant to 44 U.S.C. 1510. The Code of Federal Regulations is sold by the Superintendent of Documents. DEPARTMENT OF AGRICULTURE Rural Utilities Service 7 CFR Part 1779 Rural Housing Service 7 CFR Part 3575 Rural Business-Cooperative Service 7 CFR Part 4287 Notification of Guarantee Loan Payment Deferrals for Business and Industry Loan Guarantees, Rural Energy for America Program Loan Guarantees, Community Facilities Loan Guarantees, and Water and Waste Loan Guarantees Rural Business-Cooperative Service, Rural Housing Service, and Rural Utilities Service, USDA. ACTION: Notification. AGENCY: The Rural-Business Cooperative Service (RBCS), Rural Housing Service (RHS), and Rural Utilities Service (RUS) agencies of the Rural Development mission area, hereinafter referred to as Agency, will temporarily allow lenders with guaranteed loans with the Agency to unilaterally offer payment deferrals for the period specified in the DATES section of this notification to their customers who may be experiencing temporary cash flow issues due to the Coronavirus (COVID–19) pandemic. DATES: This policy is effective March 31, 2020 and the temporary authorization expires on September 30, 2020. FOR FURTHER INFORMATION CONTACT: For RBCS, Aaron Morris, Director, Program Processing Division, 202–720–1501, Aaron.Morris@usda.gov; for RHS, Deborah Jackson, Director, Guaranteed Loan Processing and Servicing Division, 202–720–8454, Deborah.Jackson2@ usda.gov; for RUS, James Fritz, Water jbell on DSKJLSW7X2PROD with RULES SUMMARY: VerDate Sep<11>2014 16:11 Mar 30, 2020 Jkt 250001 and Environmental Programs, 413–253– 4303, James.Fritz2@usda.gov. In accordance with 7 CFR 4287.107 (RBCS), 7 CFR 3575.69 (RHS), and 7 CFR 1779.69 (RUS), the lender is responsible for servicing the entire loan and for taking all servicing actions that a reasonably prudent lender would perform in servicing its own portfolio of loans that are not guaranteed. Beginning immediately and through September 30, 2020, the USDA Business and Industry Guaranteed Loan Program (B&I), Rural Energy for America Program (REAP), Community Facilities Guaranteed Loan Program, and Water and Waste Guaranteed Program lenders may assist borrowers experiencing temporary cash flow issues resulting from the COVID– 19 pandemic, by deferring payments for a period no longer than 180 days from the date the original payment is due. The lender must notify the Agency in writing of any payment deferments. Written notification to the Agency will meet the standard for concurrence until September 30, 2020. After September 30, 2020, lenders must resume obtaining Agency approval in accordance with all applicable program regulations, forms, and existing authorities. A response from the Agency is not required. This guidance applies to all borrowers that had a current repayment status as of January 31, 2020. If the loan has been sold on the secondary market, the secondary market holder and lender must agree to the deferment actions being taken. The Agency will expect a written agreement signed by both parties in these instances prior to executing any payment deferral action. The Agency does not consider a loan that is under a deferral or forbearance agreement to be a delinquent loan. Unpaid interest accruing during a deferral or forbearance agreement is not subject to the limitation of the guarantee of accrued interest under 7 CFR 4287.145(d) (RBCS), 7 CFR 3575.3 (RHS), nor 7 CFR 1779.3 (RUS). SUPPLEMENTARY INFORMATION: Bette B. Brand, Deputy Under Secretary Rural Development. [FR Doc. 2020–06706 Filed 3–27–20; 11:15 am] BILLING CODE 3410–XY–P PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 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 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. AGENCY: 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; SUMMARY: E:\FR\FM\31MRR1.SGM 31MRR1 17722 Federal Register / Vol. 85, No. 62 / Tuesday, March 31, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES 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, bbean@fdic.gov; Irina Leonova, Acting Chief, Capital Strategies Section, ileonova@fdic.gov; Peter Yen, Senior Policy Analyst, pyen@fdic.gov, Capital Markets Branch, Division of Risk Management Supervision, (202) 898– 6888; or Michael Phillips, Counsel, mphillips@fdic.gov; Catherine Wood, Counsel, cawood@fdic.gov; 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. 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 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 1 See 85 FR 4362 (January 24, 2020). 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). 2 The VerDate Sep<11>2014 16:11 Mar 30, 2020 Jkt 250001 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 riskweighted 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 riskweighted assets. The SA–CCR rule provides non-advanced approaches banking organization the option to adopt the SA–CCR methodology for purposes of standardized total riskweighted 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 riskweight for the CCP-facing portion of a PO 00000 Frm 00002 Fmt 4700 Sfmt 9990 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 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 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. E:\FR\FM\31MRR1.SGM 31MRR1

Agencies

[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.

-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \1\ See 85 FR 4362 (January 24, 2020).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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