Smaller EU nations stare down giants in capital floor standoff
Four clients say US bank has quoted “less competitive” spreads as a result of new capital regime
The standardised approach to counterparty credit risk (SA-CCR) was implemented in June 2021 in the European Union and in January 2022 in the UK and the US as part of the Basel Committee on Banking Supervision’s Capital Requirements Regulation (CRR II) package of reforms. This is already having a disparate impact on banks, with rises or decreases in risk-weighted assets.
The banks are still not happy about having to use standardised approaches and argue that their internal models currently offer a more risk-sensitive view than SA-CCR. But everyone would agree that SA-CCR is far more risk-sensitive than the old, standardised approach – the current exposure method.
SA-CCR punishes uncollateralised swaps and directional risk, which pushes up the cost of trading FX forwards and swaps in particular. This will most likely result in banks changing their pricing and even their business models over time.
This Risk.net special report contains a collection of articles that consider the impact of SA-CCR and how banks are adapting to the new regime, as well as the challenges of managing counterparty credit risk and reducing the cost of trading over-the-counter derivatives.
Counterparty
credit risk
special report 2022
Optimising swaps
and forwards
Mitigating risk and reducing all-in cost
A forum of industry leaders discusses the rising cost of foreign exchange forwards and swaps under the standardised approach to CCR, how vendors are adapting optimisation solutions to manage the impact of this new regime, and whether banks are likely to change the products they’re offering
BNP Paribas’ CVA capital
charge hits record high
Risk-weighted assets for potential drop in value of derivatives instruments reached €6bn in June
How will US regulators perform
the Basel III balancing act?
Largest banks seek offsets for higher capital requirements caused by possible end of IRB, IMM
Sponsored Q&A
FX pricing: US banks
RWA inflation
US capital regime
Adapting to SA-CCR
Managing the increased cost of derivatives trading
Project finance risk methodologies
Focus on PD and LGD modelling within the Basel Framework
Federico Tacchetto, senior manager at Prometeia, describes how to calculate risk parameters for project finance exposures. Based on a simulation approach of the cashflows, it is assessed whether the generated net revenue will be sufficient to repay the loan instalments, risking the default of the project and potentially jeopardising recovery of the outstanding amount due
Sponsored feature
Managing CCR to reduce the all-in
cost of OTC derivatives portfolios
Erik Petri, head of triBalance at OSTTRA, explores how CCR compounds the costs of trading over-the-counter (OTC) derivatives and the maintenance of derivatives portfolios, examining the nuances of OTC credit risk management, and proposing key ways organisations can manage and optimise CCR
Sponsored feature
SA-CCR extends reach over US banks’ credit and market risk
Gap between standardised and advanced
risk-weighted assets at its widest ever for BofA,
BNY Mellon, Morgan Stanley and Wells Fargo
RWA inflation: US banks
Standard risk measures
low-balled Archegos exposures
When a potential blow-up doesn’t show up,
what use are value-at-risk, the standardised approach for CCR and stress tests?
Risk models
European banks can’t escape the SA-CCR hit, warns FX exec
European Union dealers may feel regulation’s impact, although they are not yet directly affected, says Goldman Sachs’ David Wilkins
FX pricing: EU banks
Regulation triple-whammy lops 63bp off StanChart’s CET1
January 1 saw the introduction of the standardised approach for CCR, curbs on internal ratings-based modelling and the reversal of software capitalisation benefits
CET1 ratios: US banks
LSEG beefs up non-cleared
ambitions with Quantile deal
Agreement to buy optimisation firm for £274 million strengthens LCH’s foreign exchange foothold as the standardised approach for CCR bites
Optimisation
Smaller EU nations stare down
giants in capital floor standoff
EU member states clash over severity of
internally modelled output floors for cross-
border bank groups
EU transitional rules
Citi’s share of cleared
swaps hits new high
Latest quarterly increase, alongside that of Goldman Sachs, bucks trend across top US banks
Cleared swaps
Climate is changing for derivatives valuation adjustments
Banks back increased use of global warming criteria when calculating valuation adjustments
CCR hedging & climate risk
For enquires and information regarding Risk.net special reports, contact:
Antony Chambers
Publisher
+44 20 7316 9683
antony.chambers@infopro-digital.com
BNP Paribas’ CVA capital charge hits record high
RWA inflation
Download the 2022 Counterparty credit risk special report in PDF format