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Basel Committee Proposal on the Capital Treatment of Bank Exposures to Central Counterparties

Today, the Basel Committee, in cooperation with the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO), proposed changes to the capital treatment of banks’ exposures to central counterparties (CCPs).  The Basel Committee published an interim framework in July 2012 and noted at that time that additional work was needed to improve the capital framework.  Prior to publication of the interim framework, the Basel Committee issued two other proposals on the topic in November 2011 and December 2010. …  Read More

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Basel Committee Proposes Non-Internal Model Method for Capitalizing Counterparty Credit Risk Exposures

Today, the Basel Committee proposed a non-internal model method (NIMM) for assessing the counterparty credit risk associated with derivative transactions. The proposal would, when finalized, replace the Basel capital framework’s existing methods for determining the credit exposure amount for derivatives, i.e., the Current Exposure Method (CEM) and the Standardized Approach.

According to the Basel Committee, NIMM improves the risk sensitivity of the CEM by differentiating between margined and unmargined trades.  NIMM also revises certain supervisory factors to reflect the level of volatilities observed over the recent stress period and provides a more meaningful recognition of the benefits of legally enforceable netting agreements.…  Read More

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Final Text of CRD IV Published in Official Journal of the European Union

CRD IV, which consists of a Regulation and Directive, was published in the Official Journal of the European Union on June 27, 2013.  CRD IV implements Basel III and other prudential standards for EU credit institutions and investment firms.  Links to the final text of the CRD IV Regulation and Directive are set forth below.

Materials:

CRD IV Regulation (June 27, 2013) available here: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:176:0001:0337:EN:PDF

CRD IV Directive (June 27, 2013) available here: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:176:0338:0436:EN:PDF Read More

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OCC Lending Limits Final Rule: Credit Exposures from Derivatives and Securities Financing Transactions

The OCC has issued a final rule specifying the methods for calculating credit exposure arising from derivatives and securities financing transactions for purposes of the federal lending limits that apply to national banks, federal and state branches and agencies of foreign banks and federal and state savings associations. The final rule reflects a further convergence in methods for measuring credit exposure from derivatives and securities financing transactions between bank capital rules and legal lending limits.

The final rule, like the June 2012 interim final rule that it revises, implements Section 610 of the Dodd-Frank Act, which is one of several provisions in the statute that requires banks to take into account credit exposure arising from derivatives and securities financing transactions in calculating prudential limits. …  Read More

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Davis Polk Blackline of OCC Lending Limits Final Rule vs. Interim Final Rule

Today, the OCC published a final rule to implement Section 610 of the Dodd Frank Act, which applies the lending limit statute to credit exposures arising from derivative transactions and securities financing transactions.

We have prepared a blackline of the final rule against the interim final rule on lending limits that was issued in June 2012.  Most of the changes are contained in Sections 32.1 (authority, purpose and scope), 32.2 (definitions), 32.6 (nonconforming loans and extensions of credit) and 32.9 (credit exposure arising from derivative and securities financing transactions).…  Read More

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