Standardized Approach for Calculating the Exposure Amount of Derivative Contracts; Correction, 57956-57964 [2020-17744]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION
• FEDERAL RESERVE SYSTEM
• Department of Treasury
• Office of the Comptroller of the Currency

[Federal Register Volume 85, Number 181 (Thursday, September 17, 2020)]
[Rules and Regulations]
[Pages 57956-57964]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17744]


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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-AE93

FEDERAL RESERVE SYSTEM

12 CFR Part 217

[Docket R-1629]
RIN 7100-AF22

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 324

RIN 3064-AF52


Standardized Approach for Calculating the Exposure Amount of 
Derivative Contracts; Correction

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

ACTION: Final rule; correcting amendments.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board 
of Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) are issuing this final rule to 
make technical corrections to certain provisions of the capital rule 
related to the standardized approach for counterparty credit risk, 
which is used for calculating the exposure amount of derivative 
contracts and was adopted in a final rule published on January 24, 
2020.

DATES: This final rule is effective September 17, 2020.

FOR FURTHER INFORMATION CONTACT: 

[[Page 57957]]

    OCC: Margot Schwadron, Director, or Guowei Zhang, Risk Expert, 
Capital and Regulatory Policy, (202) 649-6370; or Kevin Korzeniewski, 
Counsel, Daniel Perez, Senior Attorney, or Daniel Sufranski, Attorney, 
Chief Counsel's Office, (202) 649-5490; or, for persons who are deaf or 
hearing impaired, TTY, (202) 649-5597; the Office of the Comptroller of 
the Currency, 400 7th Street SW, Washington, DC 20219.
    Board: Benjamin McDonough, Assistant General Counsel, (202) 452-
2036; Mark Buresh, Senior Counsel, (202) 452-5270; Gillian Burgess, 
Senior Counsel, (202) 736-5564; or Andrew Hartlage, Counsel, (202) 452-
6483, Legal Division, Board of Governors of the Federal Reserve System, 
20th Street and Constitution Avenue NW, Washington, DC 20551. Users of 
Telecommunications Device for the Deaf (TDD) only, call (202) 263-4869.
    FDIC: Michael Phillips, Counsel, [email protected], (202) 898-
3581; Catherine Wood, Counsel, [email protected], (202) 898-3788; Francis 
Kuo, Counsel, [email protected], (202) 898-6654; 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 (OCC), the Board of Governors of the Federal Reserve System 
(Board), and the Federal Deposit Insurance Corporation (FDIC) 
(collectively, the ``agencies'') are making technical corrections to 
certain provisions of the capital rule relating to the standardized 
approach for counterparty credit risk (SA-CCR), which is used for 
calculating the exposure amount of derivative contracts and was adopted 
in a final rule published on January 24, 2020 (the SA-CCR final 
rule).\1\ The amendatory text of the SA-CCR final rule did not 
accurately reflect the treatment described in the Supplementary 
Information section of the SA-CCR final rule for the items described 
below. This final rule corrects the agencies' capital rule consistent 
with the Supplementary Information section of the SA-CCR final rule. 
The agencies are also making corrections to certain cross-references 
within the capital rule that are no longer accurate as of the SA-CCR 
final rule's effective date.
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    \1\ Standardized Approach for Calculating the Exposure Amount of 
Derivative Contracts, 85 FR 4362 (January 24, 2020). The SA-CCR 
final rule took effect on April 1, 2020. The agencies also recently 
issued a notice stating that banking organizations could elect to 
adopt SA-CCR for the first quarter of 2020, on a best-efforts basis. 
85 FR 17721 (March 31, 2020).
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    Specifically, these technical corrections revise the capital rule 
for the following items:
     In Sec.  _.10(c)(4)(ii)(B)(1), related to the definition 
of total leverage exposure, two cross-references are being updated to 
reflect the renumbering of a provision in Sec.  _.34 in the SA-CCR 
final rule. The SA-CCR final rule modified the previous Sec.  _.34(b) 
to become Sec.  _.34(c), but the current capital rule erroneously 
continues to refer to Sec.  _.34(b).
     In Sec.  _.10(c)(4)(ii)(B)(2), related to the definition 
of total leverage exposure, the agencies are consolidating the text of 
paragraphs (i) and (ii) into a single new paragraph (i). Also, a new 
paragraph (ii) is being added to correspond to paragraphs 
(c)(4)(ii)(B)(1)(i) and (ii). As a result of these revisions, a banking 
organization that uses SA-CCR will be permitted to exclude the 
potential future exposure (PFE) of all credit derivatives or other 
similar instruments through which it provides credit protection from 
total leverage exposure, provided that it does so consistently over 
time. The option to exclude the PFE of certain credit derivatives is 
available to banking organizations that use the current exposure 
methodology (CEM) and the technical correction provides such option to 
banking organizations that use SA-CCR. The agencies indicated in the 
Supplementary Information section of the SA-CCR final rule that they 
would adopt the same treatment under SA-CCR as under CEM.\2\
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    \2\ See 85 FR 4362 at 4394-95. Specifically, the agencies stated 
that a banking organization subject to the supplementary leverage 
ratio may choose to exclude from the potential future exposures 
(PFE) component of the exposure amount calculation the portion of a 
written credit derivative that is not offset according to Sec.  
_.10(c)(4)(ii)(D)(1)-(2) and for which the effective notional amount 
of the written credit derivative is included in total leverage 
exposure.
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     In Sec.  _.10, each use of the term ``U.S. GAAP'' is being 
replaced with ``GAAP'' because ``GAAP'' is the appropriate defined term 
in Sec.  _.2. Under Sec.  _.2, ``GAAP'' is defined as generally 
accepted accounting principles as used in the United States.
     In Sec.  _.32(f)(1), related to the general risk weight 
for corporate exposures and the exceptions for certain exposures to a 
qualifying central counterparty (QCCP), the cross-reference is being 
updated to refer to both paragraph (f)(2) and paragraph (f)(3). The SA-
CCR final rule added paragraph (f)(3), but the current capital rule 
refers only to paragraph (f)(2).
     In Sec.  _.37(c)(2)(i)(B), related to the calculation of 
exposure amount for collateralized transactions, cross-references to 
Sec.  _.34(a)(1)-(2) are being updated to reflect the renumbering of a 
provision in Sec.  _.34 in the SA-CCR final rule. The SA-CCR final rule 
modified the previous Sec.  _.34(a) to become Sec.  _.34(b).
     In Sec.  _.132(c)(8)(iii) and (iv), and Sec.  
_.132(c)(9)(i), references to table 2 for applicable supervisory factor 
determination are being updated to reflect the renumbering of the 
table.
     In Sec.  _.132(c)(9)(ii)(A)(1), related to the adjusted 
notional amount for an interest rate derivative contract or a credit 
derivative contract, the formula for supervisory duration is being 
updated to correct a typographical error.
     In Sec.  _.132(c)(9)(iv)(A)(3), related to the maturity 
factor, the revision provides that the higher margin period of risk set 
forth in that section must be used if there have been ``more than two'' 
outstanding margin disputes in the netting set during the prior two 
quarters. The Supplementary Information section of the SA-CCR final 
rule indicated that the agencies intended to align the criteria for 
applying the higher margin period of risk in SA-CCR with that in the 
internal models methodology, which applies only if more than two margin 
disputes in a netting set have occurred over the two previous 
quarters.\3\ In other sections of the capital rule, the SA-CCR final 
rule included language referencing ``more than two'' margin disputes. 
However, in this section, the phrase ``two or more'' was used instead. 
The revised language thus implements the intended treatment as provided 
in the Supplementary Information section of the SA-CCR final rule.
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    \3\ See 85 FR 4362 at 4387.

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[[Page 57958]]

[GRAPHIC] [TIFF OMITTED] TR17SE20.017

     In Sec.  _.133(d)(5) and (6), related to the exposure of a 
clearing member banking organization to a QCCP arising from a default 
fund contribution, the revision corrects the calculation of the 
hypothetical capital requirement of a QCCP (KCCP) and adds appropriate 
subscripts. The term EADi is amended to equal the exposure 
of the QCCP to each clearing member of the QCCP. While the 
Supplementary Information section of the SA-CCR final rule had 
discussed this treatment, the amendatory text referred to the exposure 
of each clearing member to the QCCP. The agencies also are making 
conforming corrections to the calculation of EAD for repo-style 
transactions in Sec.  _.133(d)(6)(iii). In addition, references to 
``CCP'' in these paragraphs are being replaced by ``QCCP'' for clarity, 
as the paragraphs already only apply in the context of a QCCP.

Administrative Law

A. Administrative Procedure Act

    The agencies are issuing this final rule without prior notice and 
the opportunity for public comment and the 30-day delayed effective 
date ordinarily prescribed by the Administrative Procedure Act 
(APA).\4\ Pursuant to section 553(b)(B) of the APA, general notice and 
the opportunity for public comment are not required with respect to a 
rulemaking when an ``agency for good cause finds (and incorporates the 
finding and a brief statement of reasons therefor in the rules issued) 
that notice and public procedure thereon are impracticable, 
unnecessary, or contrary to the public interest.'' \5\
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    \4\ 5 U.S.C. 553.
    \5\ 5 U.S.C. 553(b)(B).
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    The agencies believe that the public interest is best served by 
implementing the final rule as soon as possible. Public comment is 
unnecessary, as the SA-CCR final rule was previously issued for 
comment, and the technical edits discussed here merely correct errors 
in the SA-CCR final rule.
    The technical corrections made by this final rule will reduce 
ambiguity and ensure that banking organizations implement the SA-CCR 
provisions of the capital rule in a consistent manner and as described 
in the Supplementary Information section of the SA-CCR final rule. This 
will facilitate the ability of banking organizations to make the 
changes necessary to implement the SA-CCR final rule.
    The APA also requires a 30-day delayed effective date, except for 
(1) substantive rules which grant or recognize an exemption or relieve 
a restriction; (2) interpretative rules and statements of policy; or 
(3) as otherwise provided by the agency for good cause.\6\ The agencies 
find good cause to publish the final rule correction with an immediate 
effective date for the same reasons set forth above under the 
discussion of section 553(b)(B) of the APA.
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    \6\ 5 U.S.C. 553(d).
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B. Congressional Review Act

    For purposes of Congressional Review Act, the OMB makes a 
determination as to whether a final rule constitutes a ``major'' 
rule.\7\ If a rule is deemed a ``major rule'' by the Office of 
Management and Budget (OMB), the Congressional Review Act generally 
provides that the rule may not take effect until at least 60 days 
following its publication.\8\
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    \7\ 5 U.S.C. 801 et seq.
    \8\ 5 U.S.C. 801(a)(3).
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    In the event that the final rule is deemed a ``major'' rule for 
purposes of the Congressional Review Act, the agencies are adopting the 
final rule without the delayed effective date generally prescribed 
under the Congressional Review Act. The delayed effective date required 
by the Congressional Review Act does not apply to any rule for which an 
agency for good cause finds (and incorporates the finding and a brief 
statement of reasons therefor in the rule issued) that notice and 
public procedure thereon are impracticable, unnecessary, or contrary to 
the public interest.\9\ As described above, the agencies believe that 
delaying the effective date of this final rule would be contrary to the 
public interest.
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    \9\ 5 U.S.C. 808.
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    As required by the Congressional Review Act, the agencies will 
submit the final rule and other appropriate reports to Congress and the 
Government Accountability Office for review.

C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA) 
states that no agency may conduct or sponsor, nor is the respondent 
required to respond to, an information collection unless it displays a 
currently valid OMB control number. This final rule does not contain 
any information collection requirements and therefore, no submissions 
will be made by the agencies to OMB in connection with this final rule.

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \10\ requires an agency to 
consider whether the rules it proposes will have a significant economic 
impact on a substantial number of small entities.\11\ The RFA applies 
only to rules for which an agency publishes a general notice of 
proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed 
previously, consistent with section 553(b)(B) of the APA, the agencies 
have determined for good cause that general notice and opportunity for 
public comment is unnecessary and contrary to the public's interest, 
and therefore the agencies are not issuing a notice of proposed 
rulemaking. Accordingly, the Agencies have concluded that the RFA's 
requirements relating to an initial and final regulatory flexibility 
analysis do not apply.
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    \10\ 5 U.S.C. 601 et seq.
    \11\ Under regulations issued by the Small Business 
Administration, a small entity includes a depository institution, 
bank holding company, or savings and loan holding company with total 
assets of $600 million or less and trust companies with average 
annual receipts of $41.5 million or less. See 13 CFR 121.201.
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E. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA),\12\ in determining the effective 
date and administrative compliance requirements for new regulations 
that impose additional reporting, disclosure, or other requirements on 
insured depository institutions (IDIs), each Federal banking agency 
must consider, consistent with the principle of safety and soundness 
and the public interest, any administrative burdens that such

[[Page 57959]]

regulations would place on depository institutions, including small 
depository institutions, and customers of depository institutions, as 
well as the benefits of such regulations. In addition, section 302(b) 
of RCDRIA requires new regulations and amendments to regulations that 
impose additional reporting, disclosures, or other new requirements on 
IDIs generally to take effect on the first day of a calendar quarter 
that begins on or after the date on which the regulations are published 
in final form, with certain exceptions, including for good cause.\13\ 
For the reasons described above, the agencies find good cause exists 
under section 302 of RCDRIA to publish this final rule with an 
immediate effective date.
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    \12\ 12 U.S.C. 4802(a).
    \13\ 12 U.S.C. 4802.
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F. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \14\ requires the Federal 
banking agencies to use ``plain language'' in all proposed and final 
rules published after January 1, 2000. In light of this requirement, 
the agencies have sought to present the final rule in a simple and 
straightforward manner.
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    \14\ 12 U.S.C. 4809.
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G. OCC Unfunded Mandates Reform Act of 1995 Determination

    As a general matter, the Unfunded Mandates Act of 1995 (UMRA), 2 
U.S.C. 1531 et seq., requires the preparation of a budgetary impact 
statement before promulgating a rule that includes a Federal mandate 
that may result in the expenditure by State, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. However, the UMRA does not apply to 
final rules for which a general notice of proposed rulemaking was not 
published. See 2 U.S.C. 1532(a). Therefore, because the OCC has found 
good cause to dispense with notice and comment for this final rule, the 
OCC has not prepared an economic analysis of the rule under the UMRA.

List of Subjects

12 CFR Part 3

    Administrative practice and procedure, Capital, National banks, 
Risk.

12 CFR Part 217

    Administrative practice and procedure, Banks, Banking, Capital, 
Federal Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Risk, Securities.

12 CFR Part 324

    Administrative practice and procedure, Banks, Reporting and 
recordkeeping requirements, Savings associations, State non-member 
banks.

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

    For the reasons set forth in the preamble, the OCC amends 12 CFR 
part 3 as follows:

PART 3--CAPITAL ADEQUACY STANDARDS

0
1. The authority citation for part 3 continues to read as follows:

    Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, 5412(b)(2)(B), and 
Pub. L. 116-136, 134 Stat. 281.


0
2. Amend Sec.  3.10 by:
0
a. Removing, in paragraphs (c)(4)(ii)(A), (c)(4)(ii)(B)(1) introductory 
text, (c)(4)(ii)(C)(2)(i), and (c)(4)(ii)(H), the phrase ``U.S. GAAP'' 
and by adding in its place the phrase ``GAAP'';
0
b. Removing, in paragraphs (c)(4)(ii)(B)(1) introductory text and 
(c)(4)(ii)(B)(1)(i), the phrase ``without regard to Sec.  3.34(b)'' and 
by adding in its place the phrase ``without regard to Sec.  3.34(c)''; 
and
0
c. Revising paragraphs (c)(4)(ii)(B)(2)(i) and (ii).
    The revisions read as follows:


Sec.  3.10  Minimum capital requirements.

* * * * *
    (c) * * *
    (4) * * *
    (ii) * * *
    (B) * * *
    (2)(i) For a national bank or Federal savings association that uses 
the standardized approach for counterparty credit risk under section 
Sec.  3.132(c) for its standardized risk-weighted assets, the PFE for 
each netting set to which the national bank or Federal savings 
association is a counterparty (including cleared transactions except as 
provided in paragraph (c)(4)(ii)(I) of this section and, at the 
discretion of the national bank or Federal savings association, 
excluding a forward agreement treated as a derivative contract that is 
part of a repurchase or reverse repurchase or a securities borrowing or 
lending transaction that qualifies for sales treatment under GAAP), as 
determined under Sec.  3.132(c)(7), in which the term C in Sec.  
3.132(c)(7)(i) equals zero, and, for any counterparty that is not a 
commercial end-user, multiplied by 1.4. For purposes of this paragraph 
(c)(4)(ii)(B)(2)(i), a national bank or Federal savings association may 
set the value of the term C in Sec.  3.132(c)(7)(i) equal to the amount 
of collateral posted by a clearing member client of the national bank 
or Federal savings association in connection with the client-facing 
derivative transactions within the netting set; and
    (ii) A national bank or Federal savings association may choose to 
exclude the PFE of all credit derivatives or other similar instruments 
through which it provides credit protection when calculating the PFE 
under Sec.  3.132(c), provided that it does so consistently over time 
for the calculation of the PFE for all such instruments;
* * * * *

0
3. Section 3.32 is amended by revising paragraph (f)(1) to read as 
follows:


Sec.  3.32   General risk weights.

* * * * *
    (f) * * * (1) A national bank or Federal savings association must 
assign a 100 percent risk weight to all its corporate exposures, except 
as provided in paragraphs (f)(2) and (f)(3) of this section.
* * * * *


Sec.  3.37  [Amended]

0
4. Section 3.37 is amended by, in paragraph (c)(2)(i)(B), removing 
``Sec.  3.34(a)(1) or (2)'' and adding in its place ``Sec.  3.34(b)(1) 
or (2).''

0
5. Amend Sec.  3.132 by:
0
a. In paragraphs (c)(8)(iii) and (iv), and (c)(9)(i), removing ``Table 
2'' and adding in its place ``Table 3''; and
0
b. Revising paragraphs (c)(9)(ii)(A)(1) and (c)(9)(iv)(A)(3).
    The revisions read as follows:


Sec.  3.132   Counterparty credit risk of repo-style transactions, 
eligible margin loans, and OTC derivative contracts.

* * * * *
    (c) * * *
    (9) * * *
    (ii) * * *
    (A)(1) For an interest rate derivative contract or a credit 
derivative contract, the adjusted notional amount equals the product of 
the notional amount of the derivative contract, as measured in U.S. 
dollars using the exchange rate on the date of the calculation, and the 
supervisory duration, as calculated by the following formula:

[[Page 57960]]

[GRAPHIC] [TIFF OMITTED] TR17SE20.011

Where:

S is the number of business days from the present day until the 
start date of the derivative contract, or zero if the start date has 
already passed; and
E is the number of business days from the present day until the end 
date of the derivative contract.
* * * * *
    (iv) * * *
    (A) * * *
    (3) Notwithstanding paragraphs (c)(9)(iv)(A)(1) and (2) of this 
section, for a netting set subject to more than two outstanding 
disputes over margin that lasted longer than the MPOR over the previous 
two quarters, the applicable floor is twice the amount provided in 
paragraphs (c)(9)(iv)(A)(1) and (2) of this section.
* * * * *

0
6. Section 3.133 is amended by revising paragraphs (d)(4) and (5), 
(d)(6) paragraph introductory text, and paragraphs (d)(6)(i) through 
(iii) to read as follows:


Sec.  3.133   Cleared transactions.

* * * * *
    (d) * * *
    (4) Capital requirement for default fund contributions to a QCCP. A 
clearing member national bank's or Federal savings association's 
capital requirement for its default fund contribution to a QCCP (KCM) 
is equal to:
[GRAPHIC] [TIFF OMITTED] TR17SE20.012

    (5) Hypothetical capital requirement of a QCCP. Where a QCCP has 
provided its KCCP, a national bank or Federal savings 
association must rely on such disclosed figure instead of calculating 
KCCP under this paragraph (d)(5), unless the national bank 
or Federal savings association determines that a more conservative 
figure is appropriate based on the nature, structure, or 
characteristics of the QCCP. The hypothetical capital requirement of a 
QCCP (KCCP), as determined by the national bank or Federal savings 
association, is equal to:

KCCP = [Sigma]CMiEADi * 1.6 percent

Where:

CMi is each clearing member of the QCCP; and
EADi is the exposure amount of the QCCP to each clearing member of 
the QCCP, as determined under paragraph (d)(6) of this section.

    (6) EAD of a QCCP to a clearing member. (i) The EAD of a QCCP to a 
clearing member is equal to the sum of the EAD for derivative contracts 
determined under paragraph (d)(6)(ii) of this section and the EAD for 
repo-style transactions determined under paragraph (d)(6)(iii) of this 
section.
    (ii) With respect to any derivative contracts between the QCCP and 
the clearing member that are cleared transactions and any guarantees 
that the clearing member has provided to the QCCP with respect to 
performance of a clearing member client on a derivative contract, the 
EAD is equal to the exposure amount of the QCCP to the clearing member 
for all such derivative contracts and guarantees of derivative 
contracts calculated under SA-CCR in Sec.  3.132(c) (or, with respect 
to a QCCP located outside the United States, under

[[Page 57961]]

a substantially identical methodology in effect in the jurisdiction) 
using a value of 10 business days for purposes of Sec.  
3.132(c)(9)(iv); less the value of all collateral held by the QCCP 
posted by the clearing member or a client of the clearing member in 
connection with a derivative contract for which the clearing member has 
provided a guarantee to the QCCP and the amount of the prefunded 
default fund contribution of the clearing member to the QCCP.
    (iii) With respect to any repo-style transactions between the QCCP 
and a clearing member that are cleared transactions, EAD is equal to:

EADi = max{EBRMi-IMi-DFi; 0{time} 

Where:

EBRMi is the exposure amount of the QCCP to each clearing member for 
all repo-style transactions between the QCCP and the clearing 
member, as determined under Sec.  3.132(b)(2) and without 
recognition of the initial margin collateral posted by the clearing 
member to the QCCP with respect to the repo-style transactions or 
the prefunded default fund contribution of the clearing member 
institution to the QCCP;
    IMi is the initial margin collateral posted by each clearing 
member to the QCCP with respect to the repo-style transactions; and
    DFi is the prefunded default fund contribution of each clearing 
member to the QCCP that is not already deducted in paragraph 
(d)(6)(ii) of this section.
* * * * *

Board of Governors of the Federal Reserve System

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the preamble, chapter II of title 12 
of the Code of Federal Regulations is amended as follows:

PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND 
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)

0
7. The authority citation for part 217 continues to read as follows:

    Authority:  12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 
1818, 1828, 1831n, 1831o, 1831p-1, 1831w, 1835, 1844(b), 1851, 3904, 
3906-3909, 4808, 5365, 5368, 5371, and 5371 note; Pub. L. 116-136, 
134 Stat. 281.


0
8. Amend Sec.  217.10 by:
0
a. Removing, in paragraphs (c)(4)(ii)(A), (c)(4)(ii)(B)(1), 
(c)(4)(ii)(B)(2)(i), and (c)(4)(ii)(H), the phrase ``U.S. GAAP'' and by 
adding in its place the phrase ``GAAP'';
0
b. Removing, in paragraphs (c)(4)(ii)(B)(1) introductory text and 
(c)(4)(ii)(B)(1)(i), the phrase ``without regard to Sec.  217.34(b)'' 
and by adding in its place the phrase ``without regard to Sec.  
217.34(c)''; and
0
c. Revising paragraphs (c)(4)(ii)(B)(2)(i) and (ii).
    The revisions read as follows:


Sec.  217.10  Minimum capital requirements.

* * * * *
    (c) * * *
    (4) * * *
    (ii) * * *
    (B) * * *
    (2)(i) For a Board-regulated institution that uses the standardized 
approach for counterparty credit risk under section Sec.  217.132(c) 
for its standardized risk-weighted assets, the PFE for each netting set 
to which the Board-regulated institution is a counterparty (including 
cleared transactions except as provided in paragraph (c)(4)(ii)(I) of 
this section and, at the discretion of the Board-regulated institution, 
excluding a forward agreement treated as a derivative contract that is 
part of a repurchase or reverse repurchase or a securities borrowing or 
lending transaction that qualifies for sales treatment under GAAP), as 
determined under Sec.  217.132(c)(7), in which the term C in Sec.  
217.132(c)(7)(i) equals zero, and, for any counterparty that is not a 
commercial end-user, multiplied by 1.4. For purposes of this paragraph 
(c)(4)(ii)(B)(2)(i), a Board-regulated institution may set the value of 
the term C in Sec.  217.132(c)(7)(i) equal to the amount of collateral 
posted by a clearing member client of the Board-regulated institution 
in connection with the client-facing derivative transactions within the 
netting set; and
    (ii) A Board-regulated institution may choose to exclude the PFE of 
all credit derivatives or other similar instruments through which it 
provides credit protection when calculating the PFE under Sec.  
217.132(c), provided that it does so consistently over time for the 
calculation of the PFE for all such instruments;
* * * * *

0
9. Section 217.32 is amended by revising paragraph (f)(1) to read as 
follows:


Sec.  217.32  General risk weights.

* * * * *
    (f) * * * (1) A Board-regulated institution must assign a 100 
percent risk weight to all its corporate exposures, except as provided 
in paragraphs (f)(2) and (f)(3) of this section.
* * * * *


Sec.  217.37  [Amended]

0
10. Section 217.37 is amended by, in paragraph (c)(2)(i)(B), removing 
``Sec.  217.34(a)(1) or (2)'' and adding in its place ``Sec.  
217.34(b)(1) or (2).''

0
11. Amend Sec.  217.132 by:
0
a. In paragraphs (c)(8)(iii) and (iv), and (c)(9)(i), removing the 
words ``Table 2'' and adding in its place ``Table 3''; and
0
b. Revising paragraphs (c)(9)(ii)(A)(1) and (c)(9)(iv)(A)(3).
    The revisions read as follows:


Sec.  217.132   Counterparty credit risk of repo-style transactions, 
eligible margin loans, and OTC derivative contracts.

* * * * *
    (c) * * *
    (9) * * *
    (ii) * * *
    (A)(1) For an interest rate derivative contract or a credit 
derivative contract, the adjusted notional amount equals the product of 
the notional amount of the derivative contract, as measured in U.S. 
dollars using the exchange rate on the date of the calculation, and the 
supervisory duration, as calculated by the following formula:
[GRAPHIC] [TIFF OMITTED] TR17SE20.013

Where:

S is the number of business days from the present day until the 
start date of the derivative contract, or zero if the start date has 
already passed; and
E is the number of business days from the present day until the end 
date of the derivative contract.
* * * * *
    (iv) * * *
    (A) * * *
    (3) Notwithstanding paragraphs (c)(9)(iv)(A)(1) and (2) of this 
section, for a netting set subject to more than two outstanding 
disputes over margin that lasted longer than the MPOR over the previous 
two quarters, the applicable

[[Page 57962]]

floor is twice the amount provided in paragraphs (c)(9)(iv)(A)(1) and 
(2) of this section.
* * * * *

0
12. Section 217.133 is amended by revising paragraphs (d)(4) and (5), 
(d)(6) introductory text, and paragraphs (d)(6)(i) through (iii) to 
read as follows:


Sec.  217.133   Cleared transactions.

* * * * *
    (d) * * *
    (4) Capital requirement for default fund contributions to a QCCP. A 
clearing member Board-regulated institution's capital requirement for 
its default fund contribution to a QCCP (KCM) is equal to:
[GRAPHIC] [TIFF OMITTED] TR17SE20.014

    (5) Hypothetical capital requirement of a QCCP. Where a QCCP has 
provided its KCCP, a Board-regulated institution must rely 
on such disclosed figure instead of calculating KCCP under 
this paragraph (d)(5), unless the Board-regulated institution 
determines that a more conservative figure is appropriate based on the 
nature, structure, or characteristics of the QCCP. The hypothetical 
capital requirement of a QCCP (KCCP), as determined by the Board-
regulated institution, is equal to:

KCCP = [Sigma]CMi EADi * 1.6 percent

Where:

CMi is each clearing member of the QCCP; and
EADi is the exposure amount of the QCCP to each clearing member of 
the QCCP, as determined under paragraph (d)(6) of this section.

    (6) EAD of a QCCP to a clearing member. (i) The EAD of a QCCP to a 
clearing member is equal to the sum of the EAD for derivative contracts 
determined under paragraph (d)(6)(ii) of this section and the EAD for 
repo-style transactions determined under paragraph (d)(6)(iii) of this 
section.
    (ii) With respect to any derivative contracts between the QCCP and 
the clearing member that are cleared transactions and any guarantees 
that the clearing member has provided to the QCCP with respect to 
performance of a clearing member client on a derivative contract, the 
EAD is equal to the exposure amount of the QCCP to the clearing member 
for all such derivative contracts and guarantees of derivative 
contracts calculated under SA-CCR in Sec.  217.132(c) (or, with respect 
to a QCCP located outside the United States, under a substantially 
identical methodology in effect in the jurisdiction) using a value of 
10 business days for purposes of Sec.  217.132(c)(9)(iv); less the 
value of all collateral held by the QCCP posted by the clearing member 
or a client of the clearing member in connection with a derivative 
contract for which the clearing member has provided a guarantee to the 
QCCP and the amount of the prefunded default fund contribution of the 
clearing member to the QCCP.
    (iii) With respect to any repo-style transactions between the QCCP 
and a clearing member that are cleared transactions, EAD is equal to:

EADi = max{EBRMi-IMi-DFi;0{time} 

Where:

EBRMi is the exposure amount of the QCCP to each clearing member for 
all repo-style transactions between the QCCP and the clearing 
member, as determined under Sec.  217.132(b)(2) and without 
recognition of the initial margin collateral posted by the clearing 
member to the QCCP with respect to the repo-style transactions or 
the prefunded default fund contribution of the clearing member 
institution to the QCCP;
IMi is the initial margin collateral posted by each clearing member 
to the QCCP with respect to the repo-style transactions; and
DFi is the prefunded default fund contribution of each clearing 
member to the QCCP that is not already deducted in paragraph 
(d)(6)(ii) of this section.
* * * * *

[[Page 57963]]

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

    For the reasons set forth in the preamble, chapter III of title 12 
of the Code of Federal Regulations is amended as follows:

PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS

0
13. The authority citation for part 324 continues to read as follows:

    Authority:  12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233, 
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160, 
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, 
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note); 
Pub. L. 115-174; Pub. L. 116-136, 134 Stat. 281.


0
14. Amend Sec.  324.10 by:
0
a. Removing, in paragraphs (c)(4)(ii)(A), (c)(4)(ii)(B)(1), 
(c)(4)(ii)(B)(2)(i), and (c)(4)(ii)(H), the phrase ``U.S. GAAP'' and by 
adding in its place the phrase ``GAAP'';
0
b. Removing, in paragraphs (c)(4)(ii)(B)(1) introductory text and 
(c)(4)(ii)(B)(1)(i), the phrase ``without regard to Sec.  324.34(b)'' 
and by adding in its place the phrase ``without regard to Sec.  
324.34(c)''; and
0
c. Revising paragraphs (c)(4)(ii)(B)(2)(i) and (ii).
    The revisions read as follows:


Sec.  324.10  Minimum capital requirements.

* * * * *
    (c) * * *
    (4) * * *
    (ii) * * *
    (B) * * *
    (2)(i) For an FDIC-supervised institution that uses the 
standardized approach for counterparty credit risk under section Sec.  
324.132(c) for its standardized risk-weighted assets, the PFE for each 
netting set to which the FDIC-supervised institution is a counterparty 
(including cleared transactions except as provided in paragraph 
(c)(4)(ii)(I) of this section and, at the discretion of the FDIC-
supervised institution, excluding a forward agreement treated as a 
derivative contract that is part of a repurchase or reverse repurchase 
or a securities borrowing or lending transaction that qualifies for 
sales treatment under GAAP), as determined under Sec.  324.132(c)(7), 
in which the term C in Sec.  324.132(c)(7)(i) equals zero, and, for any 
counterparty that is not a commercial end-user, multiplied by 1.4. For 
purposes of this paragraph (c)(4)(ii)(B)(2)(i), an FDIC-supervised 
institution may set the value of the term C in Sec.  324.132(c)(7)(i) 
equal to the amount of collateral posted by a clearing member client of 
the FDIC-supervised institution in connection with the client-facing 
derivative transactions within the netting set; and
    (ii) An FDIC-supervised institution may choose to exclude the PFE 
of all credit derivatives or other similar instruments through which it 
provides credit protection when calculating the PFE under Sec.  
324.132(c), provided that it does so consistently over time for the 
calculation of the PFE for all such instruments;
* * * * *

0
15. Section 324.32 is amended by revising paragraph (f)(1) to read as 
follows:


Sec.  324.32   General risk weights.

* * * * *
    (f) * * * (1) An FDIC-supervised institution must assign a 100 
percent risk weight to all its corporate exposures, except as provided 
in paragraphs (f)(2) and (f)(3) of this section.
* * * * *


Sec.  324.37  [Amended]

0
16. Section 324.37 is amended by, in paragraph (c)(2)(i)(B), removing 
``Sec.  324.34(a)(1) or (2)'' and adding in its place ``Sec.  
324.34(b)(1) or (2).''

0
17. Amend Sec.  324.132 by:
0
a. In paragraphs (c)(8)(iii) and (iv), and (c)(9)(i), removing ``Table 
2'' and adding in its place ``Table 3''; and
0
b. Revising paragraphs (c)(9)(ii)(A)(1) and (c)(9)(iv)(A)(3).
    The revisions read as follows:


Sec.  324.132  Counterparty credit risk of repo-style transactions, 
eligible margin loans, and OTC derivative contracts.

* * * * *
    (c) * * *
    (9) * * *
    (ii) * * *
    (A)(1) For an interest rate derivative contract or a credit 
derivative contract, the adjusted notional amount equals the product of 
the notional amount of the derivative contract, as measured in U.S. 
dollars using the exchange rate on the date of the calculation, and the 
supervisory duration, as calculated by the following formula:
[GRAPHIC] [TIFF OMITTED] TR17SE20.015

Where:

S is the number of business days from the present day until the 
start date of the derivative contract, or zero if the start date has 
already passed; and
E is the number of business days from the present day until the end 
date of the derivative contract.
* * * * *
    (iv) * * *
    (A) * * *
    (3) Notwithstanding paragraphs (c)(9)(iv)(A)(1) and (2) of this 
section, for a netting set subject to more than two outstanding 
disputes over margin that lasted longer than the MPOR over the previous 
two quarters, the applicable floor is twice the amount provided in 
paragraphs (c)(9)(iv)(A)(1) and (2) of this section.
* * * * *

0
18. Section 324.133 is amended by revising paragraphs (d)(4) and (5), 
(d)(6) introductory text, and (d)(6)(i) through (iii) to read as 
follows:


Sec.  324.133   Cleared transactions.

* * * * *
    (d) * * *
    (4) Capital requirement for default fund contributions to a QCCP. A 
clearing member FDIC-supervised institution's capital requirement for 
its default fund contribution to a QCCP (KCM) is equal to:

[[Page 57964]]

[GRAPHIC] [TIFF OMITTED] TR17SE20.016

    (5) Hypothetical capital requirement of a QCCP. Where a QCCP has 
provided its KCCP, an FDIC-supervised institution must rely 
on such disclosed figure instead of calculating KCCP under 
this paragraph (d)(5), unless the FDIC-supervised institution 
determines that a more conservative figure is appropriate based on the 
nature, structure, or characteristics of the QCCP. The hypothetical 
capital requirement of a QCCP (KCCP), as determined by the FDIC-
supervised institution, is equal to:

KCCP = [Sigma]CMi EADi * 1.6 percent

Where:

 CMi is each clearing member of the QCCP; and
EADi is the exposure amount of the QCCP to each clearing member of 
the QCCP, as determined under paragraph (d)(6) of this section.

    (6) EAD of a QCCP to a clearing member. (i) The EAD of a QCCP to a 
clearing member is equal to the sum of the EAD for derivative contracts 
determined under paragraph (d)(6)(ii) of this section and the EAD for 
repo-style transactions determined under paragraph (d)(6)(iii) of this 
section.
    (ii) With respect to any derivative contracts between the QCCP and 
the clearing member that are cleared transactions and any guarantees 
that the clearing member has provided to the QCCP with respect to 
performance of a clearing member client on a derivative contract, the 
EAD is equal to the exposure amount of the QCCP to the clearing member 
for all such derivative contracts and guarantees of derivative 
contracts calculated under SA-CCR in Sec.  324.132(c) (or, with respect 
to a QCCP located outside the United States, under a substantially 
identical methodology in effect in the jurisdiction) using a value of 
10 business days for purposes of Sec.  324.132(c)(9)(iv); less the 
value of all collateral held by the QCCP posted by the clearing member 
or a client of the clearing member in connection with a derivative 
contract for which the clearing member has provided a guarantee to the 
QCCP and the amount of the prefunded default fund contribution of the 
clearing member to the QCCP.
    (iii) With respect to any repo-style transactions between the QCCP 
and a clearing member that are cleared transactions, EAD is equal to:

EADI = max{EBRMI-IMi-DFI;0{time} 

Where:

EBRMi is the exposure amount of the QCCP to each clearing member for 
all repo-style transactions between the QCCP and the clearing 
member, as determined under Sec.  324.132(b)(2) and without 
recognition of the initial margin collateral posted by the clearing 
member to the QCCP with respect to the repo-style transactions or 
the prefunded default fund contribution of the clearing member 
institution to the QCCP;
IMi is the initial margin collateral posted by each clearing member 
to the QCCP with respect to the repo-style transactions; and
DFi is the prefunded default fund contribution of each clearing 
member to the QCCP that is not already deducted in paragraph 
(d)(6)(ii) of this section.
* * * * *

Brian P. Brooks,
Acting Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.

Federal Deposit Insurance Corporation.

    Dated at Washington, DC, on or about July 31, 2020.
James P. Sheesley,
Acting Assistant Secretary.
[FR Doc. 2020-17744 Filed 9-16-20; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P