Cross-Product Netting Under SA-CCR Gains Momentum to Reduce Capital Costs

Banks are increasingly optimistic that upcoming revisions to the Basel III endgame capital rules in the US will allow for cross-product netting under the Standardized Approach for Counterparty Credit Risk (SA-CCR). This change is expected to lower capital requirements for cleared portfolios, particularly those involving US Treasury repos alongside other interest rate products.

Background on SA-CCR and Netting

The SA-CCR is a framework developed by the Basel Committee on Banking Supervision for measuring counterparty credit risk (CCR). As outlined by the Bank for International Settlements, it aims to replace existing non-internal models approaches like the Current Exposure Method (CEM) and the Standardized Method (SM).

Netting, refers to the reduction of credit exposure by offsetting positions. Cross-product netting specifically involves netting exposures across different types of financial products. Currently, US regulations have limited the ability to net across different cleared products.

The Issue with the Previous Proposal

An earlier draft of the capital rules, released in July 2023, proposed restrictions that would have prevented banks from netting across different cleared products. According to Risk.net, this would have increased capital costs for banks clearing US Treasury repos alongside other interest rate products.

Why Cross-Product Netting Matters

Industry groups, such as the Securities Industry and Financial Markets Association (SIFMA), have advocated for recognizing cross-product netting. SIFMA argues that the current rules fail to recognize the risk-reducing effects of netting, leading to excessive capital requirements. Allowing cross-product netting, particularly by extending SA-CCR to include repos, would treat these transactions as forward-settling interest rate derivatives, better reflecting the actual risk mitigation benefits.

Recognizing cross-product netting is seen as critical for strengthening market liquidity, advancing capital efficiency, and reducing systemic risk, especially as the volume of cleared US Treasury transactions increases under new SEC regulations.

Current Outlook

Banks are now more confident that the revised Basel III endgame proposal, expected to be published next week (as of March 13, 2026), will address these concerns and avoid raising capital requirements for cleared portfolios that include US Treasury repos. Risk.net reports that this positive outlook is driven by ongoing discussions with US banking regulators.

Key Takeaways

• The US banking industry is pushing for changes to the Basel III endgame rules to allow cross-product netting under SA-CCR.
• The primary goal is to reduce capital costs associated with clearing US Treasury repos and other interest rate products.
• Industry groups argue that current regulations do not adequately recognize the risk-reducing benefits of netting.
• A revised proposal is expected soon, with banks optimistic that it will address these concerns.