NEW Consultation Paper - The Appropriate Levels Of Single And Group Counterparty Exposure Limits

News Articles • October 31, 2017 • by: FSC

EXECUTIVE SUMMARY

Common to the Jamaican financial crisis of the mid-1990s and the 2008 global financial meltdown was the
existence of large counterparty exposures amongst key financial institutions which, at the demise of one or a few financial entities and non-financial corporations, resulted in contagion-induced financial sector
fallout. This reinforced the need for national authorities to bolster, on an ongoing basis, the legal and operational frameworks governing the preservation of financial system stability.

Though domestic regulators have long had established prudential thresholds for counterparty exposure
limits for institutions on a solo and consolidated basis, internationally, the threshold is now being extended
to financial holding companies. Consequently, in light of prudential and financial stability concerns,
regulators are proposing revisions to their prudential requirements for FIs to reflect the internationally
agreed framework for the measurement of large exposures. These revisions seek to address important gaps that pre-dispose the financial system to contagion risk, and to allow for the pursuit of timely, efficient and effective mitigation strategies that will avert or limit the possibility of an FI’s failure that could extend to the financial group, due to unsustainably large counterparty exposures.

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