June 14, 2018
Opening Statement on the Single-counterparty Credit Limit Final Rule by Chairman Jerome H. Powell
Good afternoon. I'd like to welcome our guests here at the Federal Reserve and our online viewers.
Today, we are here to consider a rule to establish single-counterparty credit limits restricting overall credit exposures between very large banks. This rule is required under section 165 of Dodd-Frank, which establishes the enhanced prudential standards that apply to our largest banks. We put earlier versions of the rule out for comment in 2011 and 2016. We received and have carefully considered public comments on these proposals, and today, we are considering a revised version of the rule for final adoption.
Rules like the one under consideration today are an important part of our work since the financial crisis in strengthening the financial system so that it will be able to provide vital support to the economy in both good and tough times. We also seek to tailor our requirements based on the activities, size, and risk of the institutions we regulate.
The financial crisis showed that financial interconnections between our largest and most complex institutions--for example, lending and borrowing between such firms--can threaten the stability of the financial system. The final rule we are considering today will limit these exposures and their associated risks. The credit limits are tailored to the size of the firm. For the very largest banks, the maximum exposure to another large bank will be set at 15 percent of Tier 1 capital. Firms that are smaller will face less-stringent restrictions. I would note that the limit for the very largest banks is tougher than required by statute and is supported by a careful analysis showing that the financial system as a whole faces increasing risks when these firms have too much exposure to each other.
This final rule is another step in sustaining an effective and efficient regulatory regime that keeps our financial system strong and protects our economy while imposing no more burden than is necessary to get the job done.