Large Exposure Limits
In January 2013, the Federal Reserve Board (the Board) proposed rules to implement Section 165(e) of the Dodd-Frank Act, which directs the Board to prescribe regulations that prohibit a bank from having credit exposures to any unaffiliated company that exceeds 25% of the capital stock and surplus of the bank.
In April 2014, the Basel Committee on Banking Supervision released its final Supervisory Framework for Measuring and Controlling Large Exposures (BCBS Large Exposures Framework). Under the BCBS Large Exposures Framework, a bank may assign the exposure amount to the structure itself as a distinct counterparty if it can demonstrate that:
(i) the bank’s exposure amount to each underlying asset of the structure is smaller than 0.25% of its eligible capital base
(ii) the exposure in a securitization is equal to or above 0.25% of a bank's capital base and the bank looks through the structure to identify the counterparty for those exposures. The counterparty corresponding to each of those underlying exposures must be identified and the underlying exposures added to any other direct or indirect exposure to the same counterparty.
Basel Committee on Banking Supervision
- Supervisory Framework for Measuring and Controlling Large Exposures - April 2014
- Consultative Document: Supervisory Framework for Measuring and Controlling Large Exposures - March 2013
- Enhanced Prudential Standards and Early Remediation Requirements for Covered Companies; Proposed Rule - January 5, 2012
- Consultation Paper: Draft regulatory technical standards on the determination of the overall exposure to a client or a group of connected clients in respect of transactions with underlying assets under Article 379 of the proposed Capital Requirements Regulation - May 2013
- April 15, 2014