Identification and measurement of step-in risk - consultative document.
The objective of the proposals included in the Consultative Document Identification and measurement of step-in risk is to mitigate potential spillover effects from the shadow banking system to banks. This work falls within the G20 initiative to strengthen the oversight and regulation of the shadow banking system and mitigate the associated potential systemic risks.
Step-in risk refers to the risk that a bank will provide financial support to an entity beyond, or in the absence of, its contractual obligations should the entity experience financial stress. The proposals would form the basis of an approach for identifying, assessing and addressing step-in risk potentially embedded in banks' relationships with shadow banking entities (although without limiting the proposals to specific entities).
To capture and address such risk, the focus is on the identification of unconsolidated entities to which a bank may nevertheless provide financial support, in order to protect itself from any adverse reputational risk stemming from its connection to the entities. The proposals also include potential approaches that could be used to reflect step-in risk in prudential measures. Further consideration is being given to how the proposals should be incorporated into the regulatory framework and their potential impact.
The Committee welcomes comments from the public on all aspects of the proposals described in this document by Thursday 17 March 2016 using the following link: www.bis.org/bcbs/commentupload.htm. All comments will be published on the Bank for International Settlements website unless a respondent specifically requests confidential treatment.
- Publication Date: December 2015
- Publication Type: Consultative
- Publication Status: Closed
- Publication Category: Liquidity Risk
- Number of Pages: 34
- Keywords: Liquidity Risk, Shadow Banking, Implicit Support, Credit Risk
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