ABA, Groups Urge Fixes to Counterparty Exposure Limit Proposal

ABA and several other financial groups on Friday urged the Federal Reserve to simplify its proposed rule setting aggregate credit exposure limits for banks and holding companies with more than $50 billion in assets and to align the rule with other international and domestic frameworks. The single counterparty credit limits addressed would include loans, derivatives, securities lending transactions and others. Required under Section 165 of the Dodd-Frank Act, the proposal significantly revised the Fed’s 2011 proposal on the topic and takes into account the framework proposed by the Basel Committee on Banking Supervision in 2014.

While the groups noted that the 2016 re-proposal contained several improvements, they still identified several areas where the proposal would be needlessly difficult to put into practice. They recommended alternatives to several aspects of the proposal that would better tailor the rule to its prudential purpose, impose operational burdens only where necessary to achieve the financial stability objectives that undergird the SCCL, use reasonable measurement methodologies that are a realistic reflection of risk and vary in application only where necessary.

The groups also urged the Fed to align the final rule with related regulatory regimes, in particular the existing risk-based capital rules and the OCC’s lending limits. For more information, contact ABA’s Hu Benton or Jason Shafer.