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.
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