November 12, 2018

November 12, 2018

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Federal Reserve Adopts Final Rule for Single Counterparty Credit Limit

On June 19, the Federal Reserve adopted a final rule that sets overall single counterparty credit limits for global systemically important banking entities (GSIBs) and US bank holding companies with at least $250 billion in total consolidated assets.

The new rule implements section 165(e) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the Federal Reserve to impose limits on the amount of credit exposure that such a bank holding company or foreign banking organization can have to an unaffiliated company in order to reduce the risks arising from the company’s failure.

Under the final rule, a US GSIB is prohibited from having aggregate net credit exposure to another GSIB in excess of 15 percent of its tier 1 capital. For exposure of a GSIB to a non-GSIB counterparty or any single counterparty exposure of a bank holding company with total consolidated assets of $250 billion or more that is not a GSIB, that limit increases to 25 percent. The rule also applies to foreign banking organizations operating in the US with at least $250 billion in total global consolidated assets (as well as their intermediate holding companies with $50 billion or more in total US consolidated assets).

GSIBs will be required to comply with the new rule by January 1, 2020. All other firms are required to comply by July 1, 2020.

The rule, which takes the form of a new Subpart H for Regulation YY, is available here.

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About this Author

Guy Dempsey Jr., Bank Regulations Legal Specialist, Katten Muchin
Partner

Guy C. Dempsey Jr. concentrates his practice on derivatives and structured products and on bank regulation. He advises clients on derivatives transactions of all types across all asset classes, as well as on the corporate governance, regulatory, collateral, compliance, insolvency and litigation issues associated with such products.

Much of Guy’s work involves helping bank and non-bank clients analyze the details and impact of the Dodd-Frank Act. He maintains deep knowledge of the banking laws and regulations relating to capital markets activities....

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