Building on a prior consultation, the Basel Committee has refined its approach to constraining the risk it believes banks take in support of “shadow banks” through structures that, while containing no contractual backstop requirements, nonetheless lead banks to “step in” to protect their customers or counterparties. In contrast to most Basel standards, the proposed approach to step-in risk provides considerable flexibility for national supervisors and their banks. No new mandatory (i.e., Pillar 1) capital charge is proposed. Instead, the consultation lays out the structures and relationships that pose step-in risk, details how banks are to identify it, and lays out a series of risk-management or supervisory remedies.
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