SA-CCR proposal imminent, Fed adviser says

NSFR could also be finalised before year-end; final stress capital buffer rule expected in early 2019

The Fed will issue a series of proposals and final rules in the coming months

The Federal Reserve is placing “a high degree of priority” on finalising its capital and liquidity standards for large banks – beginning with a proposal on the standardised approach to counterparty credit risk.

“In terms of priorities for some of the reforms, I think SA-CCR is getting a high degree of priority and you should expect to see a proposal on that in the US soon,” said Norah Barger, senior adviser to the board of governors of the Federal Reserve System.

SA-CCR permeates the Basel framework to the extent that other standards can’t be finalised until it is in place. It replaces the 30-year-old current exposure method, and is intended to be more risk-sensitive, but banks say it still produces “bizarre outcomes”.  

Barger was speaking at an industry conference in New York on October 4.

A proposal on the Net Stable Funding Ratio will follow SA-CCR, Barger said. The Fed received a welter of comments on the treatment of derivatives liabilities in the NSFR. The Basel Committee conceded a year ago that national regulators could lower the net stable funding requirement for derivatives liabilities from 20% to 5%, at their discretion, and Barger hinted the Fed might exercise that option. 

“The issue was resolved in a way in Basel that we are hoping will allow us to go forward on that. There are comments in a few other areas that we are trying to square with the Basel standard. So that will be coming out after the SA-CCR proposal. I can’t tell you how closely after that,” said Barger.

The Basel Committee on October 4 published a monitoring report that found the vast majority of banks were compliant with the liquidity risk measure.

Finalising the stress capital buffer, which was proposed in April, is another priority. A final rule can be expected in the first half of 2019, Barger said.  

The Fed’s efforts to complete the bank capital framework have been delayed by the Economic Growth, Regulatory Relief and Consumer Protection Act (S2155).

“We have the Crapo legislation with the emphasis on tailoring; there is a legislative mandate associated with that. It has been taking up a lot of energy in order to meet those deadlines,” Barger said.  

Since Fed staff are already working on the Crapo-mandated tailoring, they will simultaneously work to tailor rules for the foreign banks, she added.

“The Crapo bill, in terms of the tailoring it mandates, does not mention foreign banks operating in the US. But if you tailor operations for domestic banks, that does raise issues with the foreign banks, and we are working in parallel to try to do something for the foreign banks that will leverage what we are doing with the domestic banks. It’s a bit more complicated and there is no legislative mandate. We will be looking to issue a proposal for that not long after the domestic proposals, and you may see them together.”