A new standard for calculating regulatory capital for banks' exposures to central counterparties (CCPs) has been finalised by the Basel Committee on Banking Supervision (BCBS). It comes into effect on 1 January 2017 when it will replace an interim capital requirements standard published in 2012.
The new standard aims to simplify the underlying policy framework and to complement initiatives undertaken by other supervisory bodies as well as supporting G20 and Financial Stability Board initiatives such as those relating to central clearing of standardised OTC derivative contracts.
The final standard differs from the current interim standard by:
- including a single approach for calculating capital requirements for a bank's exposure that arises from its contributions to the mutualised default fund of a qualifying CCP (QCCP);
- employing the standardised approach for counterparty credit risk (as opposed to the Current Exposure Method) to measure the hypothetical capital requirement of a CCP;
- including an explicit cap on the capital charges applicable to a bank's exposures to a QCCP;
- specifying the treatment of multi-level client structures whereby an institution clears its trades through intermediaries linked to a CCP; and
- incorporating responses to frequently asked questions posed to the Basel Committee in the course of its work on the final standard.
Stefan Ingves, chairman of the Basel Committee and Governor of Sveriges Riksbank, said this showed how regulators “can combine disparate perspectives and arrive at relatively simple solutions for complex issues”.
The new standard can be accessed by clicking here.