Basel Requirements under the Large Exposures Regime

The new Basel Large Exposures Regime should be implemented from the 01 January 2019.

After having presented its first consultative paper, in March 2013, the Basel Committee on Banking Supervision recently presented its final proposals for international and consistent large exposure rules. The new rules still provide for a general upper limit on large exposures of 25% of the so-called "eligible capital" (core capital only). However, this will not apply between Global Systemically Important Banks (G-SIBs) and a large exposure upper limit of 15% has been set here.

Furthermore, compared with the consultative paper, which was published in 2013, the following adjustments have been made: 

1. The definition threshold (reporting threshold) is now 10% of eligible capital instead of the 5% as initially proposed.

2. In future, in order to calculate the exposure to OTC derivatives, the so-called "Standardised Approach for measuring Counterparty Credit Risk (SA-CCR)“ shall be used.

3. Within the context of traditional off-balance sheet transactions, it is envisaged that, in future, the credit conversion factors from the Credit Risk Standardised Approach (CR SA) will be used to measure exposures, whereby a lower limit (floor) of 10% would have to be taken into account.

4. Within the scope of credit risk mitigation techniques, in principle, physical collateral will no longer be eligible.

5. Exposures to sovereigns and central banks (intraday interbank exposures) as well as loans to qualifying central counterparties will be 100% exempt from the assessment of the large loan exposure limits. However, by 2016, the Basel Committee will review whether or not it is appropriate to introduce limits for exposures to qualifying authorised counterparties in connection with clearing activities. 

6. Covered bonds, under certain circumstances, can be assigned an exposure value of 20% of the nominal value.

7. Within the scope of scrutinising certain transactions (such as securitisation vehicles or funds) the initially proposed granularity threshold has been replaced with a materiality threshold, which was set at 0.25% of eligible capital. 

While transitional rules are not envisaged, it will be possible for national banking supervisory authorities to collect reports on the basis of the new rules, prior to 2019 already, in order to facilitate the changeover for institutions and to identify any difficulties early on.

Within the scope of large exposure reporting, similarly as for Basel III monitoring, it can be assumed that reports will have to be prepared accordingly in the future.