SCCL Compliance Lab

Understanding the 15% and 25% Exposure Limits Under SCCL 1. Overview The Single Counterparty Credit Limits (SCCL) rule is designed to prevent large banks from holding too much credit exposure to any single counterparty. The goal is simple: reduce the risk that one firm's failure could threaten the financial system. This rule applies to large U.S. banking organizations, and in some cases, foreign banking entities. The limits are based on the bank's Tier 1 capital and differ depending on the type of counterparty: 15% limit for exposures to major counterparties 25% limit for exposures to all other counterparties These limits refer to aggregate net credit exposure , not just one loan or transaction. This means banks must add up all credit exposures to a counterparty group, adjust for risk mitigants like collateral, and compare the result to their Tier 1 capital. 2. Regulatory Requirement The SCCL rule is codified under 12 CFR §252, Subpart H . It sets two key t...

GAAP Consolidation vs. SCCL Aggregation: A Two-Step Framework for Identifying a Single Counterparty 1. Overview The Single Counterparty Credit Limits (SCCL) rule sets strict limits on how much credit exposure a large U.S. bank holding company or intermediate holding company (IHC) can have to any single counterparty. To comply with this rule, firms must correctly identify what counts as “a single counterparty.” This is not always straightforward. Some counterparties are part of complex corporate structures. Others may not be consolidated under accounting rules but are still closely tied through control relationship or economic interdependence. The SCCL rule addresses this challenge through a two-step framework: Step 1: Determine the counterparty based on GAAP consolidation (specifically, for the counterparty type of "company"). Step 2: Aggregate additional exposures based on control relationship or economic interdependence. 2. Regulatory Requirement Th...

SCCL vs. Large Exposures Framework: Key Differences 1. Overview The Single Counterparty Credit Limits (SCCL) rule and the Basel Large Exposures Framework (LEF) are both designed to reduce the risk that a bank suffers significant losses due to its exposure to a single counterparty. Both frameworks aim to promote financial stability by limiting how much credit risk a bank can have with one firm or group of connected firms. However, while they share a common goal, the U.S. SCCL rule and the Basel LEF differ in how they define exposures, set limits, and require reporting. The Basel LEF sets a global standard. The SCCL rule builds on that foundation but introduces more specific and often stricter requirements in the U.S. context. 2. Regulatory Requirement Basel Large Exposures Framework (LEF): Applies to internationally active banks under Basel III. Limits exposure to any single counterparty or group of connected counterparties to 25% of the bank’s Tier 1 capital. Re...

Understanding Risk Shifting for SCCL Compliance 1. Overview The Single Counterparty Credit Limits (SCCL) rule is designed to prevent large U.S. and foreign banks from having too much credit exposure to any one counterparty. A key aspect of this rule is accounting for "risk shifting," a process where a bank tries to reduce its reported exposure to a counterparty by using credit risk mitigants like guarantees, derivatives, or collateral. Learn how mitigants are applied under SCCL. While these instruments can help reduce risk, they often shift that risk to a new party. If the new party is also subject to SCCL limits, the bank must report the exposure accordingly. The goal is to make sure that total exposure across all counterparties is transparent and accurately measured. This blog post explains what risk shifting means under the SCCL rule, why it matters, common challenges banks face, how peers manage it, and how GLOBAL ABAS can help. 2. Regulatory R...

Understanding How Risk Mitigants Reduce Reported Exposure 1. Overview One of the core principles of the Single Counterparty Credit Limits (SCCL) rule is to ensure that large banking organizations are not overly exposed to any single counterparty. To do this, banks must calculate their net credit exposure , the actual risk that remains after accounting for valid risk mitigants like collateral and guarantees. This blog post explains how banks should properly calculate net credit exposure under §252.74 of the SCCL rule. We will walk through key concepts, regulatory expectations, common challenges, and how GLOBAL ABAS helps clients apply these rules accurately and efficiently. 2. Regulatory Requirement Section 252.74 of the SCCL regulation sets the framework for calculating net credit exposure. A covered company starts with its gross credit exposure to a counterparty and applies reductions for approved types of credit risk mitigants. These include: Eligible collateral ...

Understanding Gross vs. Net Credit Exposure Under SCCL 1. Overview When it comes to complying with the Federal Reserve’s Single Counterparty Credit Limits (SCCL) rule, understanding how to measure exposure is critical. Exposure, in this context, means the potential loss a banking organization could face if a counterparty fails to meet its obligations. But measuring exposure is not as simple as tallying outstanding balances. It involves a complex set of rules, especially when adjusting for collateral, guarantees, and derivatives. In this post, we’ll explain the difference between gross credit exposure and net credit exposure as defined under SCCL. We’ll also share key regulatory references, common compliance challenges, industry practices, and GLOBAL ABAS’s perspective on how to navigate this important area. 2. Regulatory Requirement The SCCL rule, issued under 12 CFR 252 Subpart H , sets limits on how much exposure a large banking organization can have to a single counter...

Understanding the SCCL Definition of “Counterparty” 1. Overview One of the most important steps in complying with the Single Counterparty Credit Limits (SCCL) regulation is accurately identifying your counterparties. While the concept may sound simple, the other side of a transaction, the regulatory definition is far more nuanced. Misclassifying counterparties can result in incorrect exposure calculations, limit breaches, or flawed reporting under FR 2590. In this post, we break down the regulatory definition of “counterparty” under SCCL, explain how it affects exposure aggregation, and discuss the practical challenges banks face when applying the rule. We also share how other institutions are approaching this issue and offer GLOBAL ABAS’s perspective on getting it right. 2. Regulatory Requirement Under SCCL, the term “counterparty” is defined in Section 252.71(e) of the Federal Reserve’s Regulation YY. The rule outlines different counterparty definitions based on the type of...

Who Must File SCCL Reports? 1. Overview In banking, managing credit risk is critical. One key area of focus is the Single Counterparty Credit Limits (SCCL) rule. This rule helps prevent banks from taking on too much risk with any single counterparty or group of connected counterparties. By limiting this exposure, regulators aim to reduce the chance that the failure of one large client could threaten the health of a bank or the financial system as a whole. To support this objective, certain banking organizations are required to file quarterly reports that show their credit exposures to individual counterparties. These reports are called FR 2590 reports and are submitted to the Federal Reserve. They help regulators monitor whether firms are staying within required credit limits. 2. Regulatory Requirement The SCCL rule is part of Regulation YY (Enhanced Prudential Standards), specifically Subpart H, issued by the Federal Res...

Understanding the Three SCCL Subparts: How Regulations YY and LL Divide Responsibility by Institution Type 1. Overview The Single-Counterparty Credit Limits (SCCL) rule is a key part of the Federal Reserve’s risk control framework. It limits how much credit exposure large banking institutions can have to a single counterparty. The goal is simple: prevent the collapse of one firm from causing a domino effect across the financial system. To apply these limits properly, the SCCL rule is divided into three main regulatory subparts. Each subpart applies to a different type of institution: 12 CFR Part 252, Subpart H — U.S. Bank Holding Companies (BHCs) 12 CFR Part 252, Subpart Q — Foreign Banking Organizations (FBOs) and their U.S. Intermediate Holding Companies (IHCs) 12 CFR Part 238, Subpart Q — Savings and Loan Holding Companies (SLHCs) Though the legal structure differs, the core goal is the same: limit credit exposure to reduce systemic risk. Understanding how th...