Part IV Other Risks, 20 Concentration and Large Exposures
- Credit risk — Prudential regulation — Basel 2 — Basel 3 — Liquidity — Basel committee on Banking Supervision
This chapter discusses the large exposure regime. The large exposures regime is one of the two substantial components of the prudential capital regulatory system — the other being liquidity — which did not fall within the Basel 2 regime. Both have now been brought within the Basel 3 regime, although the large exposure rules are expected to come into effect only from 1 January 2019. The essence of the large exposures regime is the idea that banks should diversify their risk. There are three core rules which are relevant for the large exposures regime. One is the rule that any exposure which is sufficiently ‘large’ should be reported to the regulator; the second is that no single exposure should be permitted to exceed 25 per cent of capital (15% for exposure to G-SIBs).