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Home Archive for category "Derivatives"
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Summary of Basel Committee’s Final Large Exposures Framework

Following is a summary of the Basel Committee’s final framework for measuring, reporting and limiting a bank’s exposures to single counterparties and groups of connected counterparties. The large exposures framework, which relies on a number of concepts in the Basel Committee’s risk-based capital framework, is intended to ensure greater international consistency in regulatory and supervisory approaches to large exposures and to act as a backstop to risk-based capital requirements.

Blackline Showing Changes: Davis Polk’s blackline of the Basel Committee’s April 2014 final vs.…  Read More

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Basel Committee’s Final Capital Standards for Bank Exposures to Central Counterparties (CCPs)

[Update:  We have prepared a blackline (available here) of the April 2014 final standards vs. the July 2012 interim standards.]  The Basel Committee has finalized its risk-based capital standards for bank exposures to central counterparties (CCPs).  The final standards will take effect on January 1, 2017. The interim standards that were published in July 2012 will continue to apply until that time.

Like the interim standards, the final standards distinguish between trade exposures and default fund exposures to CCPs and distinguish between exposures to qualifying CCPs (QCCPs) and non-QCCPs. …  Read More

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Overview of Basel Committee’s Standardized Approach for Measuring Derivatives Exposure (SA-CCR, formerly known as NIMM)

The Basel Committee has finalized a standardized, non-internal-model-based method for calculating counterparty credit risk exposures associated with OTC derivatives, exchange-traded derivatives, and long settlement transactions.  This blog post provides a high-level overview of the new standardized approach (SA-CCR), which replaces both the Current Exposure Method (CEM) and the Standardised Method (SM) in the Basel capital framework.  In addition, the IMM shortcut method will be eliminated from the Basel capital framework once the SA-CCR takes effect, which is scheduled for January 1, 2017. …  Read More

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Revised Basel III Leverage Ratio: Visual Memorandum

The Basel Committee recently finalized its revisions to the Basel III leverage ratio.  Compared to its June 2013 proposal, the Basel Committee has made several important changes to the denominator of the Basel III leverage ratio.  Davis Polk’s visual memorandum uses diagrams, comparison tables, examples and formulas to illustrate the Basel Committee’s revisions to the Basel III leverage ratio and potential U.S. implementation issues.

View the Revised Basel III Leverage Ratio Visual Memorandum here (PDF) Read More

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Federal Reserve Issues Guidance to Large Financial Institutions on Managing Foreign Exchange Settlement Risks for Physically Settled Transactions

Today, the Federal Reserve issued a Supervision and Regulation letter (SR letter) regarding the Basel Committee’s February 2013 guidance for managing risks associated with the settlement of foreign exchange transactions.  The Basel Committee’s guidance sets forth seven guidelines for managing foreign exchange transaction settlement risks.  Our earlier blog post on the Basel Committee’s guidance is available here.  The Federal Reserve stated that large financial institutions subject to the SR letter should apply the Basel Committee’s seven guidelines to their foreign exchange activities. …  Read More

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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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