02 Apr Alice in Basel-land – New EBA Large Exposure Framework and CRR2 Will Alter Financial Institutions’ Realities Globally
With European Banking Authority (EBA) driven large exposure compliance and reporting requirements originally due in 2021, (now likely to be pushed to 2022 because of revised EBA and Bank for International Settlements guidelines) large domestic and foreign financial institutions (FIs) are feeling the pressures of accommodating changes occurring in both the near and medium-term.
CRR2 and Large Exposure Interpretations…Things Are Not Always as They Seem
The EBA large exposure rule intends to address systemic and contagion risks inherent in an interconnected banking system. The rule will effectively limit FIs’ net credit exposure pursuant to various qualifying criteria. Capital Requirements Regulation (CRR2) reforms will provide more granularity on large exposure requirements, including a large exposure framework that will require FIs to alter their exposure calculation methods and closely monitor counterparties.
If you go through the looking glass, you will see what Basel-land reforms are in store for FIs – both in terms of calculation rules and the definition of a counterparty. The new interpretations of requirements introduce strict daily monitoring of exposures and both limit and calculation changes for large exposures. As FIs take on board the changes to large exposure guidelines, they face several challenges: FIs are being required to do more calculations, and more often, and they must monitor changes to exposures on a daily basis. Consequently, the new calculation methodology may reduce the amount of risk an FI is able to take on and could leave them feeling topsy turvy in Basel-land.
Related Links to CRR2 and Large Exposure:
- Revised Capital Requirements Regulation Rules: CRR2 Reforms And Beyond In The Age Of COVID-19
- Capital and Credit Risk Solutions Driven by Basel and Capital Requirements Regulation
- Global Liquidity Monitoring, Risk Calculations and Reporting Solutions for Financial Institutions
- Data Lineage And Basel Reporting In The Age Of COVID-19