The Basel Committee on Banking Supervision (BCBS) has published a consultation paper on the identification and measurement of step-in risk.

Step-in risk is the risk that a bank may provide financial support to an entity beyond, or in the absence of, any contractual obligations should the entity experience financial stress. To capture and address this risk, the BCBS’ proposals focus on the identification of unconsolidated entities to which a bank may nevertheless provide financial support, in order to protect itself from any adverse reputational risk stemming from its connection to the entities. The proposals also include potential approaches that could be used to reflect step-in risk in prudential measures.

The BCBS notes that its proposals are preliminary, and that it has yet to decide how they should be incorporated into the regulatory framework, including whether a Pillar 1 or Pillar 2 approach is most appropriate.

The deadline for comments on the consultation paper is 17 March 2016.

View Identification and measurement of step-in risk released by the Basel Committee, 17 December 2015