SCCL Compliance Lab

Linking Schedules G-1 to G-5: A Data Flow Guide for FR 2590 SCCL Reporting 1. Overview The FR 2590 report is a key regulatory filing required by the Federal Reserve to help monitor a firm's compliance with the Single Counterparty Credit Limits (SCCL) rule. If you are a large U.S. Bank Holding Company (BHC) or a Foreign Banking Organization (FBO), you must report your credit exposures to your top 50 counterparties. The G-schedules, G-1 through G-5, form a critical part of this report. Each schedule captures different components of gross credit exposure, along with the risk mitigation measures used to reduce those exposures. To ensure accurate reporting, these schedules must be tightly linked through a traceable and consistent data flow. This guide explains how the G-schedules work together and offers best practices for building a reliable SCCL reporting framework. 2. Regulatory Requirement Under the SCCL rule ( 12 CFR Part 252, Subpart H ), covered firms must monitor and...

SCCL vs. LLL: Understanding the Key Differences in Credit Concentration Rules In the world of banking regulation, two acronyms often come up in discussions about credit risk: SCCL and LLL. While both the Single Counterparty Credit Limit (SCCL) and the Legal Lending Limit (LLL) share the common goal of preventing a financial institution from taking on excessive credit risk to a single borrower, they are fundamentally different in their purpose, scope, and, most importantly, their aggregation rules. Understanding these differences is crucial for compliance officers, risk managers, and anyone interested in the regulatory framework that governs financial institutions. The Core Similarity: Limiting Credit Concentration At their heart, both SCCL and LLL are designed to protect against the same danger: the failure of a single large borrower causing a cascading failure within a financial institution. By imposing limits on the maximum credit exposure to any one entity, the...

Refile Trigger: Unmatched M-1 Collateral 1. Overview Under the Single Counterparty Credit Limits (SCCL) rule, covered companies must report their credit exposures and mitigating factors accurately in the FR 2590 report. One common issue that can trigger a refile is unmatched collateral reported in Schedule M-1 but not properly linked in Schedule G-5. Because Schedule G-5 captures the risk-shifting of credit exposure from the original counterparty to the collateral issuer, an unlinked M-1 entry reduces the exposure to the original counterparty without increasing the exposure to the collateral issuer. This mismatch distorts net credit exposure calculations and may understate exposure to the collateral issuer, making it appear farther from SCCL limits than it actually is. In this post, we will explain why unmatched M-1 collateral is a serious issue, how it affects SCCL compliance, and what firms can do to prevent refiles due to this reporting error. 2. Regulatory Requirement Th...

How to Complete Schedule G-5 (Risk Shifting) 1. Overview Schedule G-5 of the FR 2590 report helps regulators understand how a bank reduces its credit exposure to major counterparties. It captures the value of risk mitigants that lower gross exposures. These mitigants can include eligible collateral, guarantees, credit derivatives, equity derivatives, and certain unused credit lines. Accurately reporting these items is essential. The values reported on Schedule G-5 directly affect a bank’s net credit exposure, which is subject to Single Counterparty Credit Limits (SCCL). An incorrect or incomplete G-5 can distort the risk profile regulators see and may lead to compliance issues. 2. Regulatory Requirement Schedule G-5 is based on 12 CFR Part 252, Subpart H , especially section 252.74 . These define what types of exposures must be reported and how banks can reduce those exposures through eligible mitigants. For each of the top 50 counterparties, banks must report the value of...

Schedule G-4: Derivatives Exposures 1. Overview Derivatives play a significant role in modern banking and risk management. However, they also introduce complex and sometimes hidden credit exposures. To address this, the Federal Reserve requires large banking organizations to report derivatives exposures under the Single Counterparty Credit Limits (SCCL) rule. This is done through Schedule G-4 of the FR 2590 report . Schedule G-4 focuses on a firm's top 50 counterparties and requires detailed disclosure of derivatives exposures. By isolating these exposures, regulators can better assess concentration risk and ensure that firms do not exceed the credit limits set under the SCCL framework. 2. Regulatory Requirement The SCCL rule requires covered banking organizations to calculate credit exposure to each counterparty, including exposures from derivatives. Schedule G-4 helps firms comply with this requirement by requiring the following: Gross Notional Amounts by deriva...

How to Interpret Schedule G-2 and G-3 in FR 2590 Reporting 1. Overview Schedules G-2 and G-3 of the FR 2590 report are key tools for reporting gross credit exposures from Securities Financing Transactions (SFTs). These schedules are required under the Single Counterparty Credit Limits (SCCL) rule and help banking organizations track and report exposures to each counterparty arising from: Repurchase agreements (repos) Reverse repurchase agreements (reverse repos) Securities lending Securities borrowing Accurate reporting on these schedules is critical. It supports compliance with SCCL thresholds and helps manage credit risk across large and complex institutions. 2. Regulatory Requirement The SCCL rule, under 12 CFR §252.73, requires large U.S. Bank Holding Companies (BHCs), Intermediate Holding Companies (IHCs), and Foreign Banking Organizations (FBOs) to measure and report exposure to each counterparty, including exposures from SFTs. Schedules G-2 and G-3 brea...