Fed to Unveil New Rules Aimed at Corralling Banks’ Risk
By Donna Borak and Ryan Tracy

Policy makers are poised to unveil a new plan Friday that seeks to restrain how quickly risk can spread among the country’s biggest banks. The Federal Reserve’s revised proposal will be the central bank’s latest step to minimize the systemic risk posed by the biggest banks—not based on size, but on interconnections with other large firms—by limiting how much exposure institutions may have to each other and to their counterparties. “If you actually think about what risk is—and really what systemic risk is—concentration risk is a huge risk driver, whether it’s subprime [lending], or really a big exposure to a single borrower,” said Karen Shaw Petrou, managing director at Federal Financial Analytics Inc. “That’s what the rule is designed to capture.” In the 2010 Dodd-Frank overhaul law, Congress required the Fed to impose limits on big banks’ exposure to a single counterparty. The Fed first proposed the rules in 2011, but returned to the drawing board after bankers complained about the potential impact. Fed governor Daniel Tarullo told Congress in 2013 that more study “was needed to help us better assess the optimal structure of the rule.”