On June 14, 2018, the Federal Reserve Board voted to finalize and adopt a rule preventing concentrations of risks between large banking institutions and their counterparties from undermining financial stability.1
Rule Overview2
Under the final rule, the aggregate net credit exposure of affected financial organizations to a single counterparty is subject to one of two credit exposure limits and tailored to the size and systemic footprint of the firm.
- The first limit applies to any covered company, which is prohibited from having aggregate net credit exposure to an unaffiliated counterparty greater than 25 percent of its tier 1 capital.
- The second limit prohibits any major covered company from having aggregate net credit exposure greater than 15 percent of its tier 1 capital to a major counterparty.
A “major counterparty” is defined as a global systemically important banking organization (GSIB) or a nonbank financial company supervised by the Board.
Scope of Affected Financial Organizations3
The following types of financial organizations are affected by the final rule:
- Bank holding companies and foreign banking organizations operating in the U.S. with $250 billion or more in total consolidated assets;
- U.S. intermediate holding company of such a foreign banking organization with $50 billion or more in total consolidated assets;
- Bank holding company identified as a GSIB4 under the Board’s capital rules. A foreign banking organization (FBO) that is subject on a consolidated basis to a home country’s Single-Counterparty Credit Limit (SCCL) framework will be able to comply with the SCCL for its combined U.S. operations. To do so, the FBO needs to certify to the Board that it meets large exposure or SCCL standards on a consolidated basis (as established by its home country supervisor), and that are consistent with the large exposure standard, unless the Board determines, in writing, after notice to the FBO, that compliance with the final rule is required.5
Compliance Effective date6
GSIBs will be required to comply by January 1, 2020, and all other firms are required to comply by July 1, 2020.
References
- “Federal Reserve Board approves rule to prevent concentrations of risk between large banking organizations and their counterparties from undermining financial stability,” Board of Governors of the Federal Reserve System, Press Release, June 14, 2018. Access at: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180614a.htm
- “Single-Counterparty Credit Limits for Bank Holding Companies and Foreign Banking Organizations,” Federal Reserve System, Final Rule. Access at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180614a1.pdf
- “Federal Reserve Board approves rule to prevent concentrations of risk between large banking organizations and their counterparties from undermining financial stability,” Board of Governors of the Federal Reserve System, Press Release, June 14, 2018. Access at: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180614a.htm
- “2017 list of global systemically important banks (G-SIBs),” Financial Stability Board, November 21, 2017. Access at: http://www.fsb.org/2017/11/2017-list-of-global-systemically-important-banks-g-sibs/
- “Single-Counterparty Credit Limits for Bank Holding Companies and Foreign Banking Organizations,” Federal Reserve System, Final Rule. Access at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180614a1.pdf
- “Federal Reserve Board approves rule to prevent concentrations of risk between large banking organizations and their counterparties from undermining financial stability,” Board of Governors of the Federal Reserve System, Press Release, June 14, 2018. Access at: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180614a.htm
Newsletter Author: Venetia Woo, Mairi Bryan, Gioacchino Pullara
Newsletter Contact Person: Venetia Woo
Visit www.accenture.com/RegulatoryCompliance for latest insights on regulatory remediation and compliance transformation.
Disclaimer
This blog is intended for general informational purposes only, does not take into account the reader’s specific circumstances, may not reflect the most current developments, and is not intended to provide advice on specific circumstances. Accenture disclaims, to the fullest extent permitted by applicable law, all liability for the accuracy and completeness of the information in this blog and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professional.
About Accenture
Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions—underpinned by the world’s largest delivery network—Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With more than 442,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Its home page is www.accenture.com
Copyright © 2018 Accenture. All rights reserved.
Accenture, its logo, and High Performance Delivered are trademarks of Accenture. This document is produced by Accenture as general information on the subject. It is not intended to provide advice on your specific circumstances.
If you require advice or further details on any matters referred to, please contact your Accenture representative.