On June 14, 2018, the U.S. Board of Governors of the Federal Reserve System approved a final rule, which implements section 165(e) of the Dodd-Frank Act and establishes single-counterparty credit limits for bank holding companies and foreign banking organizations with $250 billion or more in total consolidated assets (including any U.S. intermediate holding company of these FBOs with $50 billion or more in total consolidated assets) and any other bank holding company classified by the Federal Reserve Board as a Global Systemically Important Bank.

Under the final rule, a U.S. GSIB cannot have aggregate net credit exposure to another single global systemically important banking organization or a nonbank financial company supervised by the Federal Reserve Board that exceeds 15% of its tier 1 capital, and cannot have aggregate net credit exposure that exceeds 25% of its tier 1 capital to any other counterparty (defined under the final rule to include a company (including any consolidated affiliates of the company); a natural person (including the person's immediate family collectively where the exposure to the natural person exceeds 5% of the institution's tier 1 capital); a U.S. state (including all of its agencies, instrumentalities, and political subdivisions); foreign sovereign entities that are not assigned a zero risk weighting under the risk-based capital rules (including their agencies and instrumentalities); and political subdivisions of foreign sovereign entities (including their agencies and instrumentalities)). Other financial institutions subject to the final rule (other than U.S. IHCs subject to the rule) cannot have aggregate net credit exposure to any other counterparty that exceeds 25% of an institution's tier 1 capital.

The combined U.S. operations of FBOs with $250 billion or more in total consolidated assets are also subject to these credit limits, but the FBO may comply by certifying that it is subject to consolidated credit limits established by its home country supervisor that are consistent with the Basel Committee's large exposure framework.

The final rule also establishes three tiers of credit limits for U.S. IHCs whose parent FBOs have $250 billion or more in total consolidated assets. U.S. IHCs with at least $50 billion but less than $250 billion in total consolidated assets cannot have aggregate net credit exposure to any other counterparty that exceeds 25% of the IHC's total regulatory capital plus the balance of its allowance for loan and leases losses not included in tier 2 capital under the capital adequacy guidelines. U.S. IHCs with $250 billion or more but less than $500 billion in total consolidated assets cannot have aggregate net credit exposure to any other counterparty that exceeds 25% of the IHC's tier 1 capital. Similar to the limits imposed on U.S. GSIBs, U.S. IHCs with $500 billion or more in total consolidated assets, cannot have aggregate net credit exposure to another single GSIB or a nonbank financial company supervised by the Federal Reserve Board that exceeds 15% of its tier 1 capital, and cannot have aggregate net credit exposure to any other counterparty that exceeds 25% of its tier 1 capital.

The final rule will take effect 60 days from its publication in the Federal Register. The compliance deadline for GSIBs will be January 1, 2020. For all other institutions, the compliance deadline will be July 1, 2020.

In connection with the final rule, the Federal Reserve Board issued a notice and request for comments with respect to a proposed reporting template (proposed reporting form FR 2590) to monitor compliance by the institutions covered under the final rule. The proposed form includes nine schedules that broadly cover the gross exposure of the respondent institutions to various counterparties, eligible collateral and risk mitigating factors and disclosure of certain counterparties whose risk must be aggregated under the final rule. The notice requests comments with respect to various aspects of the proposed form including whether the form is necessary and whether it can be improved, the accuracy of the estimated burdens imposed by the proposed reporting requirement and the estimated compliance costs in connection with the proposed reporting requirement. Comments to the proposal will be due 60 days from its publication in the Federal Register.

The full text of the final rule is available at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180614a1.pdf.

The full text of the reporting template proposal is available at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180614a2.pdf.

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