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Basel Committee Proposes Cap to Halve Bank Exposures

A bank should limit its exposure to any other single bank at no more than 5 percent of its capital base to ensure it can stay in business if the other lender defaults, global regulators proposed on Tuesday.

A bank should limit its exposure to any other single bank at no more than 5 percent of its capital base to ensure it can stay in business if the other lender defaults, global regulators proposed on Tuesday.

The Basel Committee of banking supervisors from nearly 30 countries wants to tighten guidelines for so-called large exposures to avoid banks becoming vulnerable in rocky markets.

Leaders of the world's top 20 economies (G20) called on the committee at the height of the financial crisis in 2009 to reinforce banking rules to make markets safer.

Large exposures are currently defined as 10 percent or more of a bank's capital base, but this has been a discretionary guideline. Basel is now proposing an enforceable global cap at half that level.

The cap, like Basel's new minimum core capital ratio of 7 percent, will be fixed from the start of 2019.

"This is to ensure that the large exposures standard is effective and consistent for internationally active banks," a committee statement said.

"On this basis, breaches of the limit should be exceptional events, should be communicated immediately to the supervisor and should, normally, be rapidly rectified."

Copyright 2013 by Reuters. All rights reserved.

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