Federal Reserve Reproposes Rules on Single-Counterparty Credit Limits for Large Banking Organizations
Continuing its implementation of Section 165(e) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the Federal Reserve Board (Federal Reserve) reproposed its long-anticipated rule that would establish single-counterparty credit limits (SCCLs) for large banking organizations on March 4, 2016. Intended to impose limits on the amount of credit exposure these organizations can have to an unaffiliated company ("counterparty"1) in order to reduce the risks arising from that counterparty’s failure, the reproposed rules would apply to: 1) U.S. bank holding companies (BHCs) with at least $50 billion in total consolidated assets ("covered companies"2) and 2) foreign banking organizations (FBOs) operating in the United States with at least $50 billion in total consolidated assets and any U.S. intermediate holding company (IHC) of an FBO (collectively, "covered entities"3). The reproposal builds upon earlier proposed rulemakings released by the Federal Reserve Board in 2011 and 2012,4 and includes some modifications based on comments received from banks, industry and trade associations, and public interest groups. Additionally, the Federal Reserve notes that the reproposal seeks to promote global consistency by generally following the 2014 supervisory framework for measuring and controlling large exposures released by the Basel Committee on Banking Supervision (BCBS framework).5 Lastly, the Federal Reserve released an accompanying white paper6 that explains the analytical and quantitative reasoning for the reproposal's more stringent 15 percent limit for credit exposures between global systemically important financial institutions, compared to the 25 percent statutory credit limit mandated by the Dodd-Frank Act.