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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.  

REGULATORY MATERIALS

Basel Committee on Banking Supervision

United States

European Union