[Economic Term] Large exposure regulation

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Today's economic term is large exposure regulation.

First, exposure refers to the risk that a company or individual bears in relation to foreign exchange trading, lending, and investment.

After the financial crisis, as the need to curb systemic risks caused by interconnectivity between financial institutions and fundamentally manage concentration risk emerged, the Basel Committee (BCBS) introduced large exposure regulations. This regulation restricts large exposures to a specific borrower (including both individuals and corporations, equivalent to the same person under Korea's banking law, single counterparty) or to a person who is economically connected to it and shares credit risk (corresponds to the same borrower under the Banking Act, group of connected). It is defined as a case where the credit exposure to counterparties exceeds 10% of the bank's basic capital, and the status of large exposures is required to be reported to the supervisory authority, while large exposures are not allowed to exceed 25% of the bank's basic capital.

In the meantime, the financial authorities have been operating the Basel-based large exposure limit regulation in the form of administrative guidance since March 2019. However, in order to prevent banks from incurring large losses due to the default of counterparties, the large exposure limit regulation was officially introduced. It was decided to introduce it.

The amendment is scheduled to be implemented starting next year after review by the Regulatory Reform Committee and approval by the Financial Services Commission.

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