The Federal Reserve’s Single-Counterparty Credit Limit Re-Proposal: Modest Revisions Leave Plenty of Room for Industry Comment

In arguably its most focused attempt at tailoring a post-crisis rule yet, the Federal Reserve has re-proposed rules establishing single-counterparty credit limits for large bank holding companies and foreign banking organizations. The re-proposal draws from industry comments on the original 2011 and 2012 proposals, various quantitative analyses and impact studies, and further developments among international financial services regulators. Industry comments and quantitative analyses have led to some significant improvements from the banking industry’s perspective. At the same time, the Federal Reserve has also introduced several new and more restrictive elements to the limit structure, including a focus on Tier 1 capital as the limit’s base and new exposure methodologies directed at funds and special purpose vehicles.

These new elements, as well as the Federal Reserve’s dismissal of certain industry concerns, will undoubtedly provide sufficient bases for comment by the financial services industry. Comments on the re-proposal are due June 3, 2016.