As noted in my last column,1 in issuing its final rule in March of this year on enhanced prudential standards, the Federal Reserve Board did not finalize its proposed rules (Proposed Rules) regarding how much a bank can lend to another person (a “counterparty”). At that time, the Basel Committee on Banking Supervision (Basel Committee) was finalizing its standards regarding the same issue, and finalization of the Proposed Rules was deferred in part due to the pending Basel Committee standard.2 On April 15, 2014, the Basel Committee issued the final version of its counterparty framework for measuring and controlling large exposures (the Basel Standards), which will take effect Jan. 1, 2019.3 This month’s column will discuss material elements of both the Proposed Rules and the Basel Committee Standards.

Statutory Language

Section 165(e) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)4 requires the Federal Reserve Board to prescribe counterparty credit limits for nonbank financial companies supervised by the Federal Reserve Board (that is, nonbank financial companies designated by the Financial Stability Oversight Council as systemically significant) and for bank holding companies with $50 billion or more of total consolidated assets, including non-U.S. banks that are treated under the International Banking Act as if they were U.S. bank holding companies because they maintain banking offices in the United States. For ease of reference, I will use the term “regulated company” in this article to refer to all three categories of companies subject to section 165(e).

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