Fed Caps How Much Giant Banks Can Be Each Other's Customers
- Rule would limit a bank’s exposure to any single counterparty
- Long-awaited Wall Street constraint required by Dodd-Frank
The Marriner S. Eccles Federal Reserve building in Washington, D.C.
Photographer: Andrew Harrer/BloombergThe Federal Reserve is imposing limits on big banks’ credit exposure to one another with a new rule, though their interactions have already declined and the rule has been eased so much that all of Wall Street is already generally in compliance.
The single-counterparty credit limit -- required by the 2010 Dodd-Frank Act as a way to keep a future crisis from spreading -- was approved by the Fed board in a 3-0 vote on Thursday. The long-awaited measure reflects changes from a 2016 proposal that would have required banks to dial back exposures by as much as $100 billion, and it’s even less stringent than the Fed’s first try in 2011. Relaxed demands, coupled with banks’ moves to central clearing of derivatives, has reduced the excess exposure closer to zero, though Fed officials declined to estimate how much.