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| | VII. Summary and conclusions |
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Measuring and Controlling Large Credit Exposures
VII. Summary and conclusions
25. While there are clearly significant definitional problems in devising a satisfactory regime for the measurement and control of large exposures, useful lessons can be drawn from the experience of other supervisors. It is suggested that a sound supervisory system would consist of the following elements: - definition of a credit exposure which encompasses not only the standard forms of lending, but all on and off-balance-sheet positions which may involve any element of loss if the counterparty defaults, valued at par with the exception of the replacement cost items referred to in paragraph 10;
- a definition of a counterparty which is sufficiently broad to include entities related to the borrower in such a way that the failure of one is likely to involve failure of the others;
- a limit of not more than 25% of group capital on the consolidated private sector non-bank exposures of a banking group, together with a lower reporting threshold of not more than 10% of capital;
- emphasis on sound internal control and audit procedures;
- special attention being paid to "connected" lending, with a limit well below the standard limit;
- the need to monitor "clustered" loan books;
- banks' attention being drawn to the need to monitor carefully its sectoral and geographic exposures.
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Measuring and Controlling Large Credit Exposures
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