Understanding the 15% and 25% Exposure Limits Under SCCL

Understanding the 15% and 25% Exposure Limits Under SCCL

1. Overview

The Single Counterparty Credit Limits (SCCL) rule is designed to prevent large banks from holding too much credit exposure to any single counterparty. The goal is simple: reduce the risk that one firm's failure could threaten the financial system.

This rule applies to large U.S. banking organizations, and in some cases, foreign banking entities. The limits are based on the bank's Tier 1 capital and differ depending on the type of counterparty:

  • 15% limit for exposures to major counterparties
  • 25% limit for exposures to all other counterparties

These limits refer to aggregate net credit exposure, not just one loan or transaction. This means banks must add up all credit exposures to a counterparty group, adjust for risk mitigants like collateral, and compare the result to their Tier 1 capital.

2. Regulatory Requirement

The SCCL rule is codified under 12 CFR §252, Subpart H. It sets two key thresholds:

  • 25% limit: No covered company may have aggregate net credit exposure to any counterparty that exceeds 25% of its Tier 1 capital.
  • 15% limit: For U.S. global systemically important banks (G-SIBs), exposures to major counterparties must not exceed 15% of Tier 1 capital.

To apply these limits correctly, banks need to determine two things:

  1. Whether they are a major covered company (i.e., a U.S. G-SIB)
  2. Whether a counterparty qualifies as a major counterparty (such as another G-SIB, certain large foreign banks, or financial firms supervised by the Federal Reserve)

This classification drives which limit—15% or 25%—must be applied to each exposure.

3. Common Challenges

While the thresholds seem straightforward, applying them in practice can be complex. Here are some of the most common challenges we see:

A. Identifying Major Counterparties

Identifying whether a counterparty qualifies as "major" is not always clear-cut. It involves determining regulatory status, ownership structures, and whether the firm falls under Federal Reserve supervision. Banks must maintain reliable systems and processes to make these classifications accurately.

B. Aggregating Exposure

The rule requires banks to aggregate all net credit exposures to a counterparty group. This includes exposures to legally separate but related entities. Under §252.76, banks must combine exposures based on:

  • Control relationships (§252.76(c))
  • Economic interdependence (§252.76(b))

This aggregation can be tricky when counterparties have complex organizational charts or opaque financial ties.

C. Managing Dual Limits

For G-SIBs, both the 15% and 25% thresholds apply—depending on the counterparty. For example:

  • A 14% exposure to a major counterparty is compliant.
  • A 16% exposure to that same major counterparty violates the 15% limit, even though it's below 25%.

This dual-limit system means institutions must track not only exposure amounts, but also counterparty classifications in real time.

D. Real-Time Monitoring

The SCCL rule requires daily monitoring of exposures and quarterly regulatory reporting (FR 2590). This demands a strong data infrastructure, daily updates, and internal controls to detect and manage breaches before they happen.

4. Peer Approaches

Leading institutions have adopted several best practices to meet SCCL requirements:

Hierarchical Counterparty Mapping

Banks use legal entity identifiers (LEIs) and internal structures to map related entities under a single counterparty group. This helps with accurate aggregation.

Dynamic Exposure Monitoring

Firms build real-time dashboards to track exposures against SCCL thresholds. These tools can flag when exposures approach limits and trigger pre-set alerts for risk teams.

Regulatory Engagement

When classification of a counterparty is unclear, some firms consult with the Federal Reserve to confirm treatment. This helps avoid future compliance issues during exams or audits.

Look-Through Mechanisms

For exposures to special purpose vehicles (SPVs) or securitizations, firms trace the exposure back to the underlying obligors. This ensures proper aggregation and avoids underestimating risk.

5. GLOBAL ABAS View

At GLOBAL ABAS, we recommend a tiered approach to managing the 15% and 25% SCCL limits:

Step 1: Regulatory Classification

Start by confirming whether your firm is a major covered company. Then, classify each counterparty as either major or not, using regulatory criteria and reliable internal data.

Step 2: Daily Exposure Tracking

Develop systems to measure exposures daily. Include risk-shifting adjustments like collateral, guarantees, and netting agreements. The exposure calculation must reflect actual risk, not just gross amounts.

Step 3: Limit Governance Framework

Establish a governance process that assigns responsibility, defines escalation paths for breaches, and supports model validation. Include checks to ensure exposure monitoring tools are accurate and updated.

Step 4: Prepare for Audit

Document assumptions, aggregation logic, and any interpretive decisions. Consistency and defensibility are key. Regulators will expect clear evidence of how your firm applies the rule in practice.

These steps help firms move beyond compliance checklists and build a strong foundation for managing concentration risk.

6. Final Thoughts

The SCCL limits of 15% and 25% are not just numbers. They are a critical risk control designed to prevent systemic failures. For covered firms, this means investing in data, systems, and governance to meet both the technical requirements and the broader regulatory intent.

In a world of interconnected financial institutions, a single concentrated exposure can trigger cascading effects. That is why the SCCL framework—and these exposure thresholds—play such an important role in financial stability.

To learn more about how GLOBAL ABAS can support your SCCL compliance program, visit our website or subscribe for future updates.

Disclaimer: This blog post is for informational purposes only and reflects our understanding of the SCCL rule and FR 2590 reporting as of the date of publication. It does not constitute legal, regulatory, or professional advice. Institutions should consult with internal and external advisors and refer directly to the SCCL rule (12 CFR Part 252, Subpart H) and FR 2590 instructions for specific guidance. GLOBAL ABAS disclaims any liability for actions taken or not taken based on this information.

Consult a GLOBAL ABAS Consulting, LLC professional regarding your specific issues and questions. Your feedback will help us improve the SCCL Compliance Lab. Please let us know what you think in the Comment below. Copyright © 2025 GLOBAL ABAS Consulting, LLC. All rights reserved.

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