The standardized approach for counterparty credit risk (SA-CCR) is the capital requirement framework under Basel III addressing counterparty risk for derivative trades. [1] It was published by the Basel Committee in March 2014.[2] See .
The framework replaced both non-internal model approaches: the Current Exposure Method (CEM) and the Standardised Method (SM). It is intended to be a "risk-sensitive methodology", i.e. conscious of asset class and hedging, that differentiates between margined and non-margined trades and recognizes netting benefits; considerations insufficiently addressed under the preceding frameworks.
SA-CCR calculates the exposure at default, EAD, of derivatives and "long-settlement transactions" exposed to counterparty credit risk, where . Here, α is a "multiplier" of 1.4, acting as a buffer to ensure sufficient coverage; and:
The SA-CCR EAD is an input to the bank's regulatory capital calculation where it is combined with the counterparty's PD and LGD to derive RWA; Some banks thus incorporate into their KVA calculations. Because of its two-step aggregation, capital allocation between trading desks (or even asset classes) is challenging; thus making it difficult to fairly calculate each desk's risk-adjusted return on capital. Various methods are then proposed here.[3] is also input to other regulatory results such as the leverage ratio and the net stable funding ratio.