How to Complete Schedule G-5 (Risk Shifting)

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:

  • Eligible Collateral Provided: Collateral that meets regulatory standards and reduces credit risk.
  • Eligible Guarantees Received: Recognized guarantees that transfer credit risk to another party.
  • Eligible Credit or Equity Derivatives: Derivatives that are specifically used for hedging the credit exposure.
  • Other Eligible Hedges: Other forms of risk mitigation that qualify under the rule.
  • Unused Portions of Certain Credit Lines: Unused commitments that qualify as risk-reducing.
  • Exclusions or Exemptions: Exposures that are excluded from SCCL calculations, such as certain sovereign or GSE exposures.

The net credit exposure for each counterparty is calculated by subtracting these risk mitigants from the gross exposure. This net number must stay within SCCL limits: generally 15% of Tier 1 capital for major counterparties, and 25% for others.

3. Common Challenges

Completing Schedule G-5 accurately can be difficult. Many firms face these common issues:

  • Data Integration: Information about mitigants may be stored in different systems than credit exposure data. Collateral might be tracked in a separate platform from guarantees or derivatives, making it hard to consolidate the data.
  • Eligibility Rules: Not all forms of collateral or guarantees qualify under the SCCL rule. Misclassifying ineligible mitigants can lead to incorrect reductions in reported exposure.
  • Risk Shifting Limits: The SCCL rule limits how much exposure can be shifted to a mitigant. You cannot reduce exposure beyond the original gross amount. For example, you cannot claim $120 million of collateral protection on a $100 million exposure.
  • Counterparty Matching: Firms must ensure that the counterparty hierarchy is consistent across all schedules. G-1 through G-5, M-1, M-2, and the Summary Schedule must all align. Inconsistent naming or mapping creates reconciliation issues.
  • Discrepancies with M-Schedules: If the amounts reported on G-5 do not tie to the supporting schedules (M-1 for collateral and M-2 for other mitigants), regulators may question the data’s accuracy.

4. Peer Approaches

Leading financial institutions use several best practices to manage these complexities:

  • Automated Data Linkages: Some firms integrate systems so that credit exposures and risk mitigants are automatically linked. This automation improves accuracy and reduces manual errors.
  • Collateral Adjustments: Institutions apply regulatory haircuts to collateral values as required by 12 CFR 217.132. These adjustments help ensure only the eligible portion of collateral is counted for risk shifting.
  • Standardized Mapping: Firms maintain documented procedures for mapping counterparties and their risk mitigants. This ensures consistency across all reports.
  • Risk Shifting Controls: Controls are in place to make sure that mitigants do not reduce exposure beyond the gross amount. These controls help avoid over-reporting reductions.
  • Alignment with Basel III: Some institutions align SCCL mitigant reporting with capital adequacy frameworks to ensure consistency across regulatory reports.

5. GLOBAL ABAS View

At GLOBAL ABAS, we recommend a structured and governance-driven approach to completing Schedule G-5:

  • Data Consistency: Use a unified counterparty structure across all G and M schedules. This helps prevent mismatches and supports accurate aggregation.
  • Linkage to M-Schedules: Ensure that amounts reported in G-5 for eligible collateral and guarantees match the corresponding detailed amounts in M-1 (eligible collateral) and M-2 (eligible risk mitigants). For example, if $50 million in eligible collateral is reported in M-1 for a given counterparty, the same $50 million should be reflected in the applicable column of G-5, attributed to the issuer of the eligible collateral.
  • Documented Methodology: Maintain a clear, documented process for how risk shifting is calculated and reported. This should include how haircuts are applied, how limits are enforced, and how mitigants are validated.
  • Audit Trails: Create strong audit trails that trace all mitigants back to the original gross exposures. This transparency supports regulatory review and internal risk management.
  • Pre-filing Validations: Conduct robust pre-filing checks to reconcile G-5 with prior submissions and with other schedules. Address discrepancies before filing to avoid regulatory questions.

6. Final Thoughts

Schedule G-5 is central to the SCCL reporting framework. It is the bridge between gross exposure and net exposure, which is the value subject to regulatory limits. A well-prepared G-5 not only supports compliance but also demonstrates the strength of a bank’s risk governance.

Because of its complexity and direct impact on exposure limits, banks should approach this schedule with care. Strong data controls, consistent methodologies, and alignment with supporting schedules are key to success.

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.

Comments

Popular posts from this blog

GAAP Consolidation vs. SCCL Aggregation: A Two-Step Framework for Identifying a Single Counterparty

What is SCCL? A Beginner’s Guide

SCCL vs. Large Exposures Framework: Key Differences