Financial Times: Federal Reserve approves rule capping big banks’ credit exposure

19 June 2018

The most powerful US banking regulator has approved a rule capping credit exposures, in a move designed to limit the risk of one big bank dragging down the rest.

The board of the Federal Reserve in Washington approved a rule requiring any bank holding company with more than $250bn in consolidated assets to limit its credit exposure to any particular counterparty to a maximum 25 per cent of its Tier 1 capital. Foreign banks operating in the US with more than $250bn in assets worldwide, and their US holding companies with $50bn or more in assets, would be subject to similar caps.

The rule, first outlined in 2016, was among the last pieces of the 2010 Dodd-Frank Act still awaiting implementation.

The biggest, most interconnected banks, known as GSIBs, will be subject to an additional restriction: a credit exposure of no more than 15 per cent of the Tier 1 capital of another GSIB.

The GSIBs will have to comply with the rule by January 2020, with all other banks complying by July 2020.

Randy Quarles, vice-chairman in charge of bank supervision, added that the Fed would consider “at a later date” whether to apply the restrictions to banks with between $100bn and $250bn in assets.

Full article on Financial Times (subscription required)


© Financial Times