U.S. Fed finalizes rule limiting bank contact single counterparties

WASHINGTON (Reuters) – The U.S. Fed on Thursday said it would finalize a guide introduced following your 2007-09 global financial crisis limiting the quality of credit exposure a huge bank could have one counterparty.

The rule, which was introduced under the 2010 Dodd-Frank financial reform law but has to be placed into effect, aims to counteract the contagion risks that saw many big banks wobble throughout the crisis due to their large exposures to each other.

"As demonstrated within the crisis, interconnectivity among major financial companies poses risks for the financial stability in the global economic system," the Fed wrote inside finalized rule.

"Financial distress at the banking organization may materially enhance the chance of distress at other firms, as a result of network of bilateral credit exposures between large, systemically important firms in the economic climate."

The final rule, that was first drafted in 2019, is true for domestic and foreign banks of greater than $250 billion in assets, including any U.S. intermediate holding company of an foreign bank with $50 billion if not more in assets, as well as any bank deemed globally systemically important.

Banks has until 2020 to abide by the rule, the Fed said.

The rule imposes an aggregate net credit exposure limit to a single counterparty of A quarter of tier one capital.

The Fed also stated that among global U.S. banks trading amongst each other, the world wide web credit exposure limit shall be Fifteen percent of tier one capital.