The Basel Committee on Banking Supervision (BCBS) has published a final standard that sets out a supervisory framework for measuring and controlling large exposures. The framework takes effect from 1 January 2019.
The final standard includes a general limit applied to all of a bank’s exposures to a single counterparty, which is set at 25% of a bank’s Tier 1 capital. The limit also applies to a bank’s exposure to identified groups of connected counterparties (i.e. counterparties that are interdependent and likely to fail simultaneously). A more restrictive limit of 15% of Tier 1 capital has been applied to exposures between banks that have been designated as globally systemically important.
The final standard also takes into account comments on the proposals that the BCBS published in March 2013. The proposals have been revised as follows:
- the definition and the reporting thresholds are 10% of the eligible capital base (5% was originally proposed);
- the treatment of a limited range of credit default swaps used as hedges in the trading book has been modified so that it is more closely aligned with the risk-based capital framework;
- the initially proposed granularity threshold for exposures to securitisation vehicles has been replaced with a materiality threshold related to the capital base of the bank (calibrated at 0.25% of the capital base); and
- a treatment that recognises particular features of some covered bonds.
View Final standard for measuring and controlling large exposures published by the Basel Committee, 15 April 2014