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.