Even banks with strong capital ratios may fail as a result of the sudden failure of a counterparty or group of connected counterparties. To address this risk and to complement the now near-final Basel III framework, the Basel Committee on Banking Supervision has published its final standard on "large exposures" which aims to ensure that exposures to counterparties are appropriately monitored and limited. The final standard will provide a degree of relief and flexibility to US and EU banks given the stricter standards proposed last year. However, requirements to conduct onerous assessments remain, particularly as regards the due diligence of exposures when investing in structures with underlying assets.
View full memo, Basel III Framework: Large Exposures