Single-Counterparty Credit Exposure Limits and Securitizations

On March 4, 2016, the Federal Reserve Board (Board) proposed single-counterparty credit exposure limits (Proposal) as required by Section 165(e) of the Dodd-Frank Act. That section calls for the imposition of limits on net credit exposures to unaffiliated counterparties of nonbank financial companies supervised by the Board and of bank holding companies. It specifically refers to the types of exposures that should count as credit exposures and sets a basic limit of 25 percent of capital and surplus but otherwise leaves further specification of the details to the discretion of the Board.[1]

Despite the fact that Section 165(e) requires the imposition of limits on nonbank financial companies supervised by the Board (commonly referred to as SIFIs), the Proposal does not do so. The preamble to the proposed regulation states that the Board intends to do this at a later time.[2] The Proposal does, however, contain limits on the net credit exposures incurred by foreign