ABA Asks Basel Committee to Withdraw Step-In Risk Proposal

In a comment letter today, ABA called on the Basel Committee on Banking Supervision to withdraw a proposal to set a global regulatory capital requirement to address “step-in” risk — that is, the risk a bank would provide financial support to nonbank financial entities in times of market stress beyond or in absence of any contractual obligations.

The association pointed out that the Basel proposal takes an excessively broad approach in determining the extent to which step-in risk exists. The indicators suggested by the proposal are “inherently vague and difficult to operationalize,” the letter said, which could lead to compliance uncertainties for banks and their regulators.

Additionally, ABA provided several examples of existing domestic regulations aimed at addressing step-in risk, arguing that because such exhaustive measures are already in place, a global standard would be unnecessary.