Single Counterparty Credit Limit (SCCL)
SCCL’s intent is to limit “net credit exposures” of an entire consolidated firm (banking organizations), to a single counterparty, to a specified percentage of the firm’s eligible capital base. The link between large banks and their counterparties is a concern SCCL aims to address to reduce the threat to overall financial stability. SCCL applies to large and mid-tier US banks and a large number of foreign banks across (both, IHC and non-IHC FBOs). In total, approx. 10+ US banks and 75+ FBOs.
Under SCCL, net exposure is calculated across a group of counterparties where their financial statements are consolidated for financial reporting purposes. Net exposure is measured against the bank’s tier 1 capital. Once net exposure exceeds 5% of tier 1 capital, additional counterparties are required to be grouped based on economic interdependencies and control relationships. SCCL reporting for FBOs covers CUSO booked exposures only. SCCL allows FBO’s to achieve “rule equivalency” by providing the home offices equivalent regulatory reporting to the FRB. The process and timing to achieve equivalency are tied to multiple challenges.
Eclipse’s team/SMEs interacted with multiple banks to efficiently & effectively address SCCL:
- Eclipse’s team/SMEs interacted with multiple banks to efficiently & effectively address SCCL:
- Conduct “study and analysis” period to interpret rule, distill key challenges, & propose optimal solution.
- Establish program governance factoring lack of clarity for delineation of ownership between finance & risk (US banks and FBOs). And (for FBO’s), establish governance for a local project (SCCL for FRB) vs. a broader home office project (to home office regulator) challenged by mis-matching timelines.
- Establish focused data sourcing analysis/ sourcing/ build/ implementation stream where optimal data sources are leveraged across booking entities/products/exposure calculation methodologies.
- Leverage expertise for critical areas to avoid rework: (1) CSSL quarterly schedules intricate cross relations (2) CSSL “quarterly schedules” vs. “daily compliance” relation (3) SCCL vs. other exposure-based regulatory reporting relations (4) For FBOs, SCCL vs. home office parallel regulatory reporting relations.
FR 2590 quarterly reporting schedules. Schedules are still in DRAFT form. The FRB is expected to issue the final version later in 2019. "Daily compliance" is required under the SCCL rule but there is no prescribed daily reporting.
Summary of net Credit exposure for top 50 Counterparties
Note: Additional details and complex counterparty grouping is required in schedules A1 and A2 for those counterparties where the exposure of what is booked exceeds 5% of the group’s tier 1 capital.
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