Basel Releases Final Guidelines on Identification and Management of Step-In Risk

On Wednesday, October 25th, the Basel Committee on Banking Supervision (BCBS) released the final guidelines on identification and management of step-in risk. "Step-in risk" is the risk that a bank may provide financial support to a securitization entity beyond or in the absence of any contractual obligation to do so. It is similar to the Federal Deposit Insurance Corporation's doctrine of "implicit support." These guidelines build upon two consultation processes carried out by the BCBS over the past two years.

Specifically, the guidelines:

  • Aim to mitigate significant step-in risk through a supervisory process built on reporting;
  • Require banks to assess their step-in risk based on a wide range of indicators and a self-defined but transparent materiality policy; and
  • Do not prescribe any automatic Pillar 1 liquidity or capital charge, but rather rely on the application of existing prudential measures available to mitigate significant step-in risk.

The guidelines are expected to be implemented in member jurisdictions by 2020.

SFIG's Regulatory Capital and Liquidity Committee previously submitted comments to the BCBS on the second consultative document regarding step-in risk, building upon our response to the questions raised by the BCBS's first consultative document.

If you would like to join SFIG's Regulatory Capital & Liquidity Committee, please contact Alyssa.Acevedo@sfindustry.org.

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