Capital management under SA-CCR


Capital management under SA-CCR

Understanding SA-CCR to drive front office decision making

Basel III has introduced a new standardised approach for measuring counterparty credit risk (SA-CCR), which impacts both RWA and leverage ratio calculations. Going forward, banks will be faced with the strategic challenge to effectively manage capital for OTC derivatives under the new SA-CCR regime.

Embedding SA-CCR into the business

Banks will be required to start thinking about how to embedd SA-CCR into their business decision making. To this end, banks ought to establish dedicated SA-CCR coordination programmes across various functions including Front-Office, Finance, Risk and IT. Beyond the technical implementation challenges, key focus areas ought to include:

  • Introducing a comprehensive SA-CCR capital allocation approach, incentivising risk-reducing trades, and enabling capital performance tracking along the business hierarchy.
  • Developing a robust collateral framework, understanding the optimal deployment of collateral across netting sets as well as the treatment of single-pledge agreements (in particular in the Lombard lending context).
  • Building a capacity to perform flexible SA-CCR analytics, allowing for real-time SA-CCR monitoring across all key dimensions.
Capital management under SA-CCR

Deloitte SA-CCR Calculator & Analyzer

Deloitte has developed an SA-CCR Calculator & Analyzer, which helps banks generate actionable insights into their counterparty credit risk exposure.

The solution provides a single platform for multiple stakeholders, allowing users to perform multi-layered analyses and deep-dives down to the individual trade level.

The analyses are presented in a visually consistent interface with multiple functionalities including:

  • Exposure metric breakdowns
  • Trade level allocations, and;
  • Comparisons to internal risk metrics.

How Deloitte can help

Deloitte has developed an end-to-end SA-CCR solution with an intuitive user interface encompassing a complete SA-CCR calculator, trade-level allocations and key netting-set level metrics. The tool allows end-users to understand risk drivers and capital impacts in order to guide front office decision making such as:

  • Transparency, breakdowns and allocations: Understanding the drivers of SA-CCR and the benefit of diversification
  • Comparison of regulatory versus internal risk measures: SA-CCR versus IMM EPE and PFE profiles
  • What-if analyses: Sensitivity tests, scenario analyses and pre-trade assessments
  • Dashboard monitoring: Tracking of capital performance, thresholds and limits monitoring
  • Quality review and benchmarking: Assessments against internal IT implementations
Did you find this useful?