During the financial crisis, banks preferred to support certain shadow banking entities in financial distress, rather than allowing them to fail and facing a loss of reputation, even though they had neither ownership interests in such entities nor any contractual obligations to support them.
In this regard, the BCBS has published a consultative document that could form the basis of an approach for identifying, assessing and addressing step-in risk, which is defined as the risk that banks would provide financial support to certain shadow banking entities or other non-bank financial entities in times of market stress, beyond or in the absence of any contractual obligations to do so.
The technical note prepared by Management Solutions’ R&D department analyzes and summarizes the conceptual framework proposed by the BCBS to address the step-in risks arising from the relationship between banks and shadow banking entities.
The framework includes the steps to be followed in order to identify step-in risk, three approaches for measuring step-in risk and other considerations regarding joint ventures and asset managers.
Scope of application:
Unconsolidated entities and other non-bank financial entities which are supported by banks beyond or in the absence of any contractual obligation.
Download the technical note by clicking here
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© GMS Management Solutions, S.L., 2017. All rights reserved. The information contained on this publication is of a general nature and does not constitute a professional opinion or an advisory service. The data used in this publication come from public sources. GMS Management Solutions, SL assumes no liability for the veracity or accuracy of such data.