In this video, Eric Juzenas discusses an important topic related to the “Notice of Proposed Rulemaking,” which concerns revisions to the standardized approach for calculating the exposure amount of derivative contracts conducted by regulated banking institutions and their affiliates. This is commonly referred to as “SA-CCR”.
This “Proposed Rule” was issued by the Board of Governors of the Federal Reserve System, the FDIC and the OCC and it has significant potential to impact corporate end-users of derivatives. The “proposed rule’s” revisions to SA-CCR risk-weighting for derivatives transactions could result in significantly higher capital requirements for regulated counterparties. This impacts interest rate, currency and commodity hedges.
Potential unintentional consequences of SA-CCR could include:
- These requirements may be passed along to corporate end users of hedging instruments in the form of higher hedge transaction costs.
- They could lead more counterparties to exit derivatives markets leaving corporate end users with fewer counterparties and decreasing liquidity.
- Counterparties could also require corporate end users to post cash collateral for derivatives transactions, which would raise costs and create operational barriers for hedging.
To learn more about this issue or its impacts, contact your Chatham relationship manager or contact us.
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