FED published, in Federal Register, the final rule to establish the single-counterparty credit limits (SCCL) for banks. The applicable entities include bank holding companies and foreign banking organizations with USD 250 billion or more in consolidated assets, including any U.S. intermediate holding company of such a foreign banking organization with USD 50 billion or more in consolidated assets, along with any bank holding company identified as a global systemically important bank holding company (G-SIB) under the capital rules of FED. The final rule will be effective from October 05, 2018. FED also issued a proposal to implement a new information collection, the SCCL (FR 2590; OMB No. 7100-NEW) and the associated notice requirements in connection with the final SCCL rule. Comments must be submitted by October 05, 2018.
The final rule, which implements a part of the Dodd-Frank Act, is generally similar to the proposed rule that was issued in March 2016 and applies credit limits that increase in stringency as the systemic footprint of a firm increases. A G-SIB would be limited to a credit exposure of no more than 15% of its tier 1 capital to another systemically important financial firm, reflecting FED's analysis of the increased systemic risk posed when the largest firms have significant exposure to one another. A bank holding company with USD 250 billion or more in consolidated assets would be restricted to a credit exposure of no more than 25% of its tier 1 capital to a counterparty. Foreign banks operating in the United States with USD 250 billion or more in global consolidated assets, along with their intermediate holding companies with USD 50 billion or more in U.S. consolidated assets, would be subject to similar limits.
In response to comments, the final rule reduces regulatory burden by using common accounting definitions to simplify application of exposure limits. In addition, a foreign bank's combined U.S. operations, though not its U.S. intermediate holding company, will be considered in compliance with the final rule if a comparable rule is in effect in the foreign bank's home country. G-SIBs will be required to comply by January 01, 2020 and all other firms are required to comply by July 01, 2020. This rule is intended to prevent concentrations of risk between large banking organizations and their counterparties from undermining financial stability.
Comment Due Date: October 05, 2018 (FR 2590)
Effective Date: October 05, 2018 (Final Rule)
Keywords: Americas, US, Banking, Reporting, SCCL, FR 2590, Credit Exposures, Systemic Risk, G-SIB, FED
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
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