The Basel Committee on Banking Supervision published new guidelines Wednesday that aim to address the risk that banks could decide to prop up other firms, such as shadow banks, that are facing financial distress — even if they aren’t legally obliged to do so.
The guidelines deal with so-called “step-in risk”, which refers to the risk that a bank steps in to help out a struggling firm that it isn’t contractually obliged to support. In general, they aim to address the risk that distress faced by shadow banks could spill over to traditional banks.
Under the new guidelines, banks will be required to assess their risks in this area based on a wide range of indicators. They guidelines do not automatically impose a capital charge for these risks, relying instead on existing capital rules to mitigate significant step-in risk.
The guidelines are expected to be implemented by 2020.