The US Federal Reserve Board has proposed a rule to address the risk related with excessive credit exposures of large banking organizations to a single counterparty.
The proposal would apply single-counterparty credit limits to bank holding firms with total consolidated assets of 50bn or more.
All banks with over $50bn in assets will be restricted to a maximum exposure to any one counterparty equal to 25% of their total capital base and several additions.
For banks with over $250bn in assets, the 25% limit will be calculated on a narrower base of Tier 1 capital.
Federal Reserve Board Chair Janet Yellen said: "We are determined to do as much as we can to reduce or eliminate the threat that trouble at one big bank will bring down other big banks."
Tailored requirements would also be established for foreign banks that operate in the US.
The planned rule implements part of the Dodd-Frank Act and builds on previous proposals released by the board in 2011 and 2012. The board made some changes depending on comments received.
The proposal plans to promote worldwide consistency by following the international large exposures framework unveiled by the Basel Committee on Banking Supervision in 2014.
The board also released a white paper detailing the analytical and quantitative reasoning for the proposed rule’s tighter 15% limit for credit exposures among systemically important financial institutions.