Bank ties with private markets under new scrutiny
Bank links with private markets are set to come under new scrutiny following a new regulatory consultation.
The Basel Committee on Banking Supervision is currently in talks about how to manage “long-standing industry weaknesses” in credit risk.
As part of this consultation, the committee has identified a number of “significant shortcomings”, and intends to draw up new guidelines on how credit risk can be measured, controlled, measured and governed.
Exposure to private markets, also known as non-bank financial companies (NBFIs) has been identified as one of the key weaknesses in the current system.
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The committee has mooted a number of guidelines which could help banks to better manage their counterparty credit risk. These include conducting more due diligence at the onboarding stage and on an ongoing basis, and developing a comprehensive credit risk mitigation strategy.
“The greatest potential benefits are expected to be in cases where banks have high-risk exposures to counterparties, including NBFIs,” the Basel Committee wrote.
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“Banks and supervisors are encouraged to take a risk-based and proportional approach in the application of the guidelines, taking into account the degree of counterparty credit risk generated by banks’ lines of business, their trading and financing activities and the complexity of such counterparty credit risk exposures.”
The committee is accepting input on its consultation until 28 August 2024.
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