How to Interpret Schedule G-2 and G-3 in FR 2590 Reporting

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 break down this exposure by:

  • Counterparty: The legal entity involved in the transaction.
  • Type of Underlying Asset: Such as sovereign debt, non-sovereign debt, main index equities, or securitizations.
  • Maturity Buckets: Time to maturity (1 year or less, over 1 to 5 years, over 5 years).
  • Risk Weight Categories: Risk categories assigned to the underlying assets (e.g., 0%, 20%, 50%, 100%).

Each schedule captures the gross exposure before credit risk mitigants and before internal model adjustments unless specifically approved. The Federal Reserve uses this detailed information to monitor compliance with exposure limits—15% of Tier 1 capital for major counterparties, and 25% for all others.

Schedule G-2 focuses on repurchase and reverse repurchase agreements, while Schedule G-3 focuses on securities lending and borrowing. Both include fields for reporting:

  • Gross exposure with and without bilateral netting
  • Collateral received and delivered
  • Counterparty-level totals

3. Common Challenges

Preparing Schedules G-2 and G-3 can be difficult. Many firms face the following challenges:

  • Data Granularity: These schedules require detailed data on each transaction, including the maturity of the exposure, type and value of collateral, and applicable risk weights.
  • Collateral Valuation and Haircuts: Firms must apply regulatory haircuts to collateral before calculating exposure amounts. This step is often complex, especially when dealing with multiple asset types.
  • Aggregation Across Affiliates: The rules require exposures to be aggregated across a counterparty and its affiliates. Mapping these relationships accurately is time-consuming and error-prone.
  • Use of Internal Models: Some firms use the Internal Models Method (IMM) to calculate exposure amounts. This requires approval by the Federal Reserve and adds complexity to data sourcing and model validation.
  • Tracking Netting Agreements: Calculating gross exposure after netting under master agreements requires clear documentation and accurate system integration.

Inaccuracies in any of these areas can lead to misreporting and potential regulatory scrutiny.

4. Peer Approaches

Leading firms have adopted several strategies to improve the accuracy and efficiency of their G-2 and G-3 reporting:

  • Dedicated Reporting Systems: Many institutions use specialized platforms to automate the collection and classification of SFT data. These systems capture maturity, asset type, and risk weight information at the transaction level.
  • Standardized Haircuts: Firms apply consistent haircuts based on regulatory guidelines, reducing the risk of misvaluation.
  • Robust Counterparty Hierarchies: Advanced legal entity hierarchies help firms correctly aggregate exposures across affiliated counterparties.
  • Pre-approved Internal Models: When feasible, institutions use IMM to calculate exposure more accurately, especially for SFTs that have derivative-like features.
  • Centralized Netting Management: Netting agreements are tracked centrally, ensuring consistency across G-2, G-3, and other related schedules.

These best practices not only support regulatory compliance but also improve internal risk awareness and management.

5. GLOBAL ABAS View

At GLOBAL ABAS, we recommend a structured and transparent approach to Schedules G-2 and G-3. Here are our key recommendations:

  • Early Counterparty Mapping: Identify all counterparties involved in SFTs and ensure that they are consistently reported across all G-schedules, including Schedule M and the Net Credit Exposure Summary.
  • Clear Data Governance: Assign data ownership across business units for collateral type, maturity classification, and valuation. Ensure data is sourced from systems of record with audit trails.
  • Conservative Haircut Application: Apply regulatory haircuts to collateral values before calculating adjusted exposures. Use Basel or Federal Reserve guidelines to standardize this process.
  • IMM Integration: Where approved, integrate IMM into your exposure calculations. This approach enhances the accuracy of risk-weighted exposure figures and aligns with broader risk modeling strategies.
  • Consistent Netting Practices: Ensure consistency in applying netting agreements across schedules G-2, G-3, and G-4. This reduces the risk of discrepancies in reported totals.
  • Periodic Reviews: Regularly review your reporting framework to stay in line with the latest regulatory interpretations and industry best practices.

By combining strong data infrastructure with consistent methods, firms can reduce errors, enhance transparency, and demonstrate compliance with confidence.

6. Final Thoughts

Schedules G-2 and G-3 are essential components of the FR 2590 report. They provide the Federal Reserve with a clear picture of SFT-related credit exposures and help ensure firms remain within regulatory limits. Given the complexity of SFTs and the need for accurate, detailed reporting, firms must invest in the right systems, processes, and expertise.

At GLOBAL ABAS, we support institutions in building robust SCCL compliance programs, including optimizing reporting for Schedules G-2 and G-3. If your organization is facing challenges in this area, we are here to help.

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.

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