Understanding the Three SCCL Subparts: How Regulations YY and LL Divide Responsibility by Institution Type

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: Though the legal structure differs, the core goal is the same: limit credit exposure to reduce systemic risk. Understanding how these subparts apply is essential for compliance teams, risk officers, and regulators.

2. Regulatory Requirement

Let’s take a closer look at each subpart and the institution type it governs.

a. Subpart H of Regulation YY — U.S. Bank Holding Companies (BHCs)

Subpart H of Regulation YY applies to large U.S. BHCs. This includes:
  • Global Systemically Important Banks (GSIBs)
  • Category II BHCs (those with $700 billion or more in total assets or $75 billion or more in cross-jurisdictional activity)
  • Category III BHCs (those with $250 billion or more in assets or $75 billion or more in short-term wholesale funding)
These institutions are referred to as “covered companies.” They must comply with the following limits:
  • 15% of Tier 1 capital to a major counterparty (such as another GSIB)
  • 25% of Tier 1 capital to any other single unaffiliated counterparty

b. Subpart Q of Regulation YY — FBOs and IHCs

Subpart Q of Regulation YY extends SCCL requirements to large foreign banking organizations operating in the U.S. This includes:
  • Category II and Category III FBOs
  • FBOs with $250 billion or more in combined U.S. operations
  • U.S. Intermediate Holding Companies (IHCs) with $50 billion or more in assets
For IHCs with $250 billion or more in assets, SCCL compliance must be monitored daily. Other IHCs can monitor quarterly. Foreign parents must also assess exposures at the U.S. combined operations (CUSO) level. These institutions generally follow the same exposure limits as BHCs: 15% for major counterparties and 25% for others.

c. Subpart Q of Regulation LL — SLHCs

This subpart applies to large Savings and Loan Holding Companies (SLHCs). Specifically:
  • Category II SLHCs
  • Category III SLHCs
Although the rule is part of Regulation LL (not YY), it closely mirrors the requirements for BHCs. The same credit exposure limits apply, and the exposure calculation methods remain consistent.

3. Common Challenges

While each subpart targets a different institution type, the implementation challenges are very similar.

Data Aggregation Across Legal Entities

Institutions must consolidate exposures across legal entities and affiliates. This includes looking through ownership chains and assessing control or economic interdependence between counterparties.

Complex Exposure Calculations

Exposure must be calculated using detailed rules. This includes:
  • Gross and net exposure
  • Offsets for eligible collateral and guarantees
  • Special rules for derivatives, securities financing transactions (SFTs), and other instruments

Risk Shifting

Firms must determine whether the credit risk has shifted to another party. For example, if a counterparty’s obligation is guaranteed by a third party, exposure may need to be allocated accordingly.

FR 2590 Reporting

The Federal Reserve requires detailed quarterly reports via Form FR 2590. For some institutions, this includes:
  • Daily compliance monitoring
  • Exposure by counterparty
  • Collateral and guarantees
  • Aggregation of related counterparties
Firms must be able to trace reported numbers back to their source systems.

4. Peer Approaches

Across the industry, firms have developed similar strategies to manage SCCL compliance.

Align with Regulatory Capital Systems

Many institutions align SCCL exposure calculations with their existing capital reporting systems. This reduces duplication and simplifies internal controls.

Daily vs. Quarterly Monitoring

Firms required to monitor SCCL daily often invest in automated tools. Smaller institutions may rely on manual processes for quarterly reporting.

Governance and Sign-Off

Most firms have formal sign-off processes for SCCL. This often includes CFO review or a designated SCCL compliance officer before FR 2590 reports are submitted.

Data Lineage and Traceability

To meet audit and regulatory expectations, firms are building systems to track each data element from source to report. This includes links to FR Y-9C, FFIEC 009, and other regulatory filings.

5. GLOBAL ABAS View

At GLOBAL ABAS, we see the split across Subparts H, Q, and 238Q as a practical way to tailor oversight by institution type. It recognizes that U.S. BHCs, foreign IHCs, and SLHCs operate under different legal and supervisory frameworks. But from a compliance perspective, the rules are almost identical. The challenge is not in the rule differences, but in managing them consistently across entities. Our key recommendations:
  • Integrate SCCL into enterprise risk platforms. Use existing systems for capital, liquidity, and credit risk to avoid silos.
  • Document assumptions and methodologies clearly. This is especially important when applying aggregation rules or determining interdependence.
  • Automate where possible. Manual processes may work for quarterly filers, but daily reporting requires stronger systems and controls.
  • Centralize SCCL governance. Even if multiple entities fall under different subparts, a single SCCL function promotes consistency and oversight.

6. Final Thoughts

The SCCL rule plays a critical role in limiting systemic risk. By setting clear limits on credit exposures to single counterparties, the rule helps prevent financial contagion during times of stress. Though the SCCL rule is spread across three subparts, the core principles are the same. The differences lie mainly in how the rule is applied to different types of institutions. Whether you are a U.S. GSIB, a foreign IHC, or a large SLHC, the message is clear: know your exposures, monitor them regularly, and stay within safe limits. To learn more about how GLOBAL ABAS can support your SCCL compliance program, visit our website or subscribe for future updates.

Disclaimer: This blog post is for informational purposes only and reflects our understanding of the SCCL rule and FR 2590 reporting as of the date of publication. It does not constitute legal, regulatory, or professional advice. Institutions should consult with internal and external advisors and refer directly to the SCCL rule (12 CFR Part 252, Subpart H) and FR 2590 instructions for specific guidance. GLOBAL ABAS disclaims any liability for actions taken or not taken based on this information.

Consult a GLOBAL ABAS Consulting, LLC professional regarding your specific issues and questions. Your feedback will help us improve the SCCL Compliance Lab. Please let us know what you think in the Comment below. Copyright © 2025 GLOBAL ABAS Consulting, LLC. All rights reserved.

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