The framework replaced both non-internal model approaches: the Current Exposure Method (CEM) and the Standardised Method (SM). It is intended to be a "risk-sensitive methodology", i.e. conscious of asset class and hedging, that differentiates between margined and non-margined trades and recognizes netting benefits; considerations insufficiently addressed under the preceding frameworks.
SA-CCR calculates the exposure at default of derivatives and "long-settlement transactions" exposed to counterparty credit risk. It builds EAD as (i) a "Replacement Cost" (RC), were the counterparty to default today; combined with (ii) the "Potential Future Exposure" (PFE) to the counterparty. For the former: current exposure, i.e. mark-to-market of the trades, is aggregated by counterparty, and then netted-off with haircutted- collateral. For the latter: per asset class, trade "add-ons", as reduced by offsetting based on correlation assumptions, are aggregated to "hedging sets"; these are then aggregated to "netting sets", and offset by the counterparty's collateral (i.e. initial margin), which is subject to a "multiplier" that limits its benefit and applies a 5% floor to the exposure.
The SA-CCR EAD is an input to the bank's regulatory capital calculation where it is combined with the counterparty's PD and LGD to derive RWA; Some banks thus incorporate SA-CCR into their KVA calculations. Because of its two-step aggregation, capital allocation between trading desks (or even asset classes) is challenging; thus making it difficult to fairly calculate each desk's risk-adjusted return on capital. Various methods are then proposed here.[3] SA-CCR is also input to other regulations such as the leverage ratio and the net stable funding ratio.
Referencesedit
^Basel Committee on Banking Supervision (2018). "Counterparty credit risk in Basel III - Executive Summary". www.bis.org
^Basel Committee on Banking Supervision (2014-03-31). "The standardised approach for measuring counterparty credit risk exposures (BCBS 279)". www.bis.org. Retrieved 3 May 2018.
standardized, approach, counterparty, credit, risk, further, information, basel, confused, with, standardized, approach, credit, risk, standardized, approach, counterparty, credit, risk, capital, requirement, framework, under, basel, addressing, counterparty, . Further information Basel III Not to be confused with Standardized approach credit risk The standardized approach for counterparty credit risk SA CCR is the capital requirement framework under Basel III addressing counterparty risk for derivative trades 1 It was published by the Basel Committee in March 2014 2 See Basel III Finalising post crisis reforms The framework replaced both non internal model approaches the Current Exposure Method CEM and the Standardised Method SM It is intended to be a risk sensitive methodology i e conscious of asset class and hedging that differentiates between margined and non margined trades and recognizes netting benefits considerations insufficiently addressed under the preceding frameworks SA CCR calculates the exposure at default of derivatives and long settlement transactions exposed to counterparty credit risk It builds EAD as i a Replacement Cost RC were the counterparty to default today combined with ii the Potential Future Exposure PFE to the counterparty For the former current exposure i e mark to market of the trades is aggregated by counterparty and then netted off with haircutted collateral For the latter per asset class trade add ons as reduced by offsetting based on correlation assumptions are aggregated to hedging sets these are then aggregated to netting sets and offset by the counterparty s collateral i e initial margin which is subject to a multiplier that limits its benefit and applies a 5 floor to the exposure The SA CCR EAD is an input to the bank s regulatory capital calculation where it is combined with the counterparty s PD and LGD to derive RWA Some banks thus incorporate SA CCR into their KVA calculations Because of its two step aggregation capital allocation between trading desks or even asset classes is challenging thus making it difficult to fairly calculate each desk s risk adjusted return on capital Various methods are then proposed here 3 SA CCR is also input to other regulations such as the leverage ratio and the net stable funding ratio References edit Basel Committee on Banking Supervision 2018 Counterparty credit risk in Basel III Executive Summary www bis org Basel Committee on Banking Supervision 2014 03 31 The standardised approach for measuring counterparty credit risk exposures BCBS 279 www bis org Retrieved 3 May 2018 FIS 2017 Allocating SA CCR fairly www fisglobal com Retrieved from https en wikipedia org w index php title Standardized approach counterparty credit risk amp oldid 1199224191, wikipedia, wiki, book, books, library,
