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Financial Services Law Insights and Observations

Federal Reserve Board approves final rule setting single counterparty credit limit

Agency Rule-Making & Guidance Federal Reserve GSIBs Dodd-Frank

Agency Rule-Making & Guidance

On June 14, the Federal Reserve Board approved a rule to establish single-counterparty credit limits for U.S. bank holding companies with at least $250 billion in total consolidated assets, foreign banking organizations operating in the U.S. with at least $250 billion in total global consolidated assets (as well as their intermediate holding companies with $50 billion or more in total U.S. consolidated assets), and global systemically important bank holding companies (GSIBs).

The rule, which implements section 165(e) of the Dodd-Frank Act, requires the Board to limit a bank holding company’s or foreign banking organization’s credit exposure to an unaffiliated company. Under the rule, a GSIB’s credit exposure is limited to 15 percent of its tier 1 capital to another systemically important firm.  A U.S. bank holding company and other applicable foreign institution is limited to a credit exposure of 25% of its tier 1 capital to a counterparty.

GSIBs will be required to comply with the final rule on January 1, 2020, while other covered entities will have through July 1, 2020 to comply. The final rule was published in the Federal Register on August 6 and will take effect October 5.