Agencies on Alert

We have reviewed the Basel Committee’s proposal to set single-counterparty credit limits (SCCLs). The global regulators have taken a strong stand, surprising many big banks that thought Basel would back the EU approach, far gentler than the FRB’s proposed standards. The global rules do not include any discussion of how to treat agency obligations while in conservatorship – directly addressed by the Fed – thus making Fannie, Freddie, and FHLB obligations subject to the 25% limit. However, departing from the FRB’s approach, Basel only applies the 10% limit to exposures between big banks, not to any SIFI.   This gives all of the GSEs a good deal of wiggle room, at least outside the U.S.

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