Fed’s SCCL proposal diverges from Basel

Author: Edward Price | Published: 21 Mar 2016

The Federal Reserve Board has proposed a rule on single counterparty credit limits (SCCL) of large banking organisations. While it broadly follows the Basel Committee's international large exposure framework, there are key differences within the text.

The latest proposals take aim at large credit exposures, particularly between larger and systemically important financial institutions.

Those exposures, in times of distress, can undermine financial stability by linking the fate of a struggling bank to otherwise healthy banks. The Fed's report, Calibrating the Single-Counterparty Credit Limit between Systemically Important Financial Institutions, was released on March 4.

"We are determined to do as much as we can to reduce or eliminate the threat that trouble at one big bank will bring down other big banks," said Federal Reserve Board chair Janet Yellen at the report's launch.

The proposed rule, which would constitute Dodd-Frank implementation, broadly follows the Basel Committee's international large exposures framework. That...