MFA-SIFMA AMG Letter on Federal Reserve Board-FDIC-OCC on SA-CCR Proposal

MFA and SIFMA AMG filed a comment letter on March 18 in response to the proposed rule issued by the Federal Reserve Board, FDIC, and the Office of the Comptroller of the Currency (the Agencies) to implement the standardized approach for counterparty credit risk (SA-CCR) to replace the current exposure method (CEM) for calculating the exposure amount of derivative contracts under the agencies’ regulatory capital rule.

The MFA-SIFMA AMG letter urges the Agencies to adopt a revised formulation of the Supplementary Leverage Ratio (SLR) under SA-CCR.  The letter recommends the following changes to the proposal to make the final SA-CCR rule less likely to increase exposure values and more risk-sensitive:

  • In the SLR, recognize the effect of cash and non-cash forms of initial margin and variation margin in reducing a banking organization’s replacement cost and potential future exposure (PFE) when clearing derivatives for clients.
  • In risk-based capital requirements, recognize more fully the effect of initial margin in reducing a banking organization’s risk-weighted assets, such as by providing for dollar-for-dollar recognition of collateral and/or by reducing the proposal’s 5 percent PFE floor.  The revised treatment of initial margin in risk-based capital requirements should also apply to client cleared derivatives exposures in the SLR.
  • Reduce and make more granular the proposal’s supervisory factors for certain credit, commodity, and equity asset classes.
  • Eliminate the 1.4X alpha multiplier.
  • Allow all transactions subject to a qualifying master netting agreement to be part of the same netting set.
  • Permit chains of FX derivatives to be part of the same exchange rate hedging set, interest rate derivatives with different reference currencies to be part of the same interest rate hedging set, and commodity derivatives in different sub-classes to be part of the same hedging set.

You read the full letter below and read the related press release here.