Large exposures · RiskAtoms Academy

By the end you will be able to

1Test an exposure against the 25% limit and the 10% threshold of Tier 1, and say what must be reported.
2Group connected counterparties by control and by economic interdependence.
3Measure exposure values after credit risk mitigation, and apply the exemptions for sovereigns, QCCPs and intraday interbank exposures.
4Look through a fund and a securitisation tranche, and decide when the 0.25% threshold lets the structure stand alone.

Why it matters

RiskAtoms Bank's exposure to each of three banks is between £1,570m and £2,126m before collateral: 46% to 62% of its Tier 1. The large exposures limit is 25%. Yet none of the three is in breach, because most of the money went out in reverse repos against gilts, and the rules move a secured exposure to the issuer of the collateral. The collateral that saves the bank from a breach makes the UK government its largest counterparty, at 467% of Tier 1, and that is allowed.

Core explanation

A hard limit on single names

Illustrative dataRiskAtoms Bank plc's capital book

The same made-up UK bank as Level 3: £67bn of assets and £4bn of equity at 31 December 2025, in £ millions. Module 4.1 adds its regulatory layer: own funds, deductions, risk-weighted assets by risk type, buffers, the leverage exposure and MREL, computed from the Level 3 credit, trading, derivatives and operational risk books. Every figure is illustrative, not any bank's data.

Pro forma. The book applies Basel 3.1, the 2017 finalisation of Basel III, to the 31 December 2025 balance sheet. On that date the bank still reported under the old UK CRR. The UK applies Basel 3.1 from 1 January 2027, and the internal model approach for market risk from 1 January 2028 (PRA PS1/26, paras 1.23 and 1.24). So the book shows the bank as it would look under the new rules.

Large exposures in Module 4.4. The capital base is the bank's Tier 1 of £3,419.9m from M4.1: The Basel framework, not the £560m that L3.3.13: Concentration risk assumed for its sample book. The balance sheet gives lines, not names, so the data assigns them: the interbank placements, facilities, repos and covered bonds are split across four invented banks (Corriemoor, Ravensholt, Pellbridge and Kestermoor, from M3.4: Counterparty credit risk); the derivatives carry their SA-CCR exposures; the twelve named borrowers of M3.3: Credit risk keep their own sample amounts. Those splits, and the money market fund on this page, are assumptions.

L3.3.13: Concentration risk introduced the limit on a sample book. Risk-based capital assumes a portfolio of many small exposures, so it does not protect a bank against the sudden failure of one large counterparty; the large exposures framework is the backstop (LEX10.1–10.2). It is not a capital charge but a limit.

The numbers

Line	Share of Tier 1	RiskAtoms Bank	Rule
Limit	25%	£854.99m	LEX20.1
Limit between two G-SIBs	15%	£512.99m	LEX20.1, LEX40.1
Large exposure	10%	£341.99m	LEX10.8
Check for economic interdependence	over 5%	£171.00m	LEX10.18
Look-through threshold	0.25%	£8.55m	LEX30.42

The base is Tier 1 (LEX20.2), a share of it (M-A01: Percentages). The limit holds “at all times”: a breach should be rare, told to the supervisor at once and put right promptly (LEX20.3). Banks report every exposure of 10% or more, before and after credit risk mitigation, every exempt exposure of 10% or more, and their 20 largest exposures whatever their size (LEX20.4). Which Tier 1 matters: L3.3.13: Concentration risk's Pellcourt Properties was 21.4% of an assumed £560m; against the bank's £3,419.9m it is 3.5%.

Connected counterparties

The limit applies to a counterparty and everyone connected to it, as one (LEX10.9). Control is presumed above 50% of the votes (LEX10.12), and can also come from agreements or the power to appoint the board (LEX10.13). Economic interdependence covers firms whose problems would spread: 50% or more of one's receipts or spending from the other, a guarantee large enough to sink the guarantor, the same source of repayment or funding (LEX10.16). A bank must check for it whenever an exposure is above 5% of Tier 1 (LEX10.18).

Sort itConnected, and why?

Sort each pair, then check.

Thornvale Engineering owns 80% of the votes in Graybeck Plastics
A shareholder with 30% of the votes that appoints most of the board
A haulier that earns 60% of its revenue from one supermarket chain
A company that has guaranteed its supplier's borrowings, so large that a call would sink it
Two companies both owned by the UK government
Two retailers in the same city, competing for the same shoppers

Exposure values

All exposures count, on and off the balance sheet, in the banking and the trading book (LEX30.1). Loans are at accounting value (LEX30.3); derivatives at their SA-CCR exposure (LEX30.4, L4.4.01: SA-CCR: replacement cost and the multiplier); SFTs at E* from the comprehensive approach (LEX30.5, L4.4.03: The internal model method and SFTs); off-balance sheet items through the standardised CCFs, floored at 10% (LEX30.6). Credit risk mitigation counts only if it is eligible under the standardised approach (LEX30.7–30.8; recall L4.2.08: Credit risk mitigation), and the protected part becomes an exposure to the protection provider or collateral issuer: substitution (LEX30.14). Trading book positions are added to the banking book at their jump-to-default with a 100% LGD (LEX30.15–30.17), so a large single-name bond or equity position counts like a loan. Qualifying covered bonds may count at 20% of their nominal (LEX30.38).

Exempt, or not?

Looking through funds and securitisations

A fund or securitisation sits between the bank and the real borrowers (LEX30.41). If each underlying exposure is below 0.25% of Tier 1, the bank may treat the structure itself as the counterparty (LEX30.42). Otherwise it must look through (LEX30.43): its share of the structure times each asset (LEX30.48), or for a tranche, its share times the lower of the tranche and the asset (LEX30.49). Underlying assets it cannot identify go to one unknown client (LEX30.44–30.45). The bank must also identify third parties that add risk to the structure, such as its manager or a protection seller (LEX30.50).

The formal version

For a counterparty or connected group $k$ and Tier 1 capital $T_1$ (LEX10.8, LEX20.1, LEX30.3–30.14, 30.42–30.49):

\begin{aligned} E_k &= \sum_{c \in G_k} \sum_{j} EV_{c,j} - \text{CRM}_k + S_k \\ \text{large if } & E_k \ge 10\% \times T_1 \\ \text{limit: } & E_k \le 25\% \times T_1 \\ \text{G-SIB to G-SIB: } & E_k \le 15\% \times T_1 \\ EV_{\text{off-balance}} &= \max(\text{CCF},\ 10\%) \times N \\ E_{k \leftarrow \text{fund}} &= s \times A_k \\ E_{k \leftarrow \text{tranche}} &= s \times \min(T,\ A_k) \\ \text{look through if } & E \ge 0.25\% \times T_1 \end{aligned}

$G_k$ is the group of connected counterparties; $EV_{c,j}$ the exposure value of item $j$ to member $c$ .
$\text{CRM}_k$ is eligible protection under the standardised approach, moved to its provider or issuer, which may itself be exempt; $S_k$ is protection that $k$ itself provides on the bank's other exposures, and collateral it issued.
Derivatives enter at their SA-CCR exposure, SFTs at $E^{*}$ , off-balance sheet items at nominal $N$ times the CCF, floored at 10%.
$s$ is the bank's share of the structure or tranche, $A_k$ the assets of borrower $k$ in it, $T$ the tranche size. Below the 0.25% line, the amount may stay with the structure.
Floors and minima (M-A11: Min, max, floors and caps): the CCF floor of 10%, the lower of tranche and asset, and in the UK the larger of 25% and £130m for institutions.

Try it

Pick Corriemoor and switch the collateral off: the bar jumps past the limit. Switch it back and look through the money market fund: £18m more. Then lend more unsecured and find the breach point. Last, pretend both banks were G-SIBs: at 15%, Corriemoor would already be over.

Try itOne bank counterparty against the limit

Counterparty

Gilt collateral recognised

Look through the fund

Both banks G-SIBs

Extra unsecured placement, £m£0m

Corriemoor Bank AG

18.3%

10% large exposure25% limitbefore collateral

Exposure value£625.69m

Share of Tier 118.3%

Limit25% = £854.99m

Headroom£229.30m

StatusLarge exposure

Before collateral62.2%

Item	Exposure value
Unsecured placements	500.00
Undrawn facility at the 40% CCF	40.00
SFTs: cash and gilts lent; E* after netting	0.00
Covered bonds at 20% of nominal	80.00
Derivatives (SA-CCR EAD)	5.69
Total	625.69

Illustrative data, £ millions; Tier 1 £3,419.94m. With the collateral recognised, the gilts the bank holds in its reverse repos move the exposure to the UK government, which is exempt. Neither bank is a G-SIB; that switch only shows the 15% limit. The fund holds certificates of deposit of Corriemoor and Ravensholt only.

Worked example

RiskAtoms Bank's largest exposures

£ millions at 31 December 2025; Tier 1 £3,419.94m.

From the balance sheet to the large exposures report

Step 1 of 7

1

Corriemoor, item by item

Item	Before CRM	After CRM
Unsecured placements	500.00	500.00
Undrawn facility at the 40% CCF	40.00	40.00
SFTs: cash and gilts lent; E* after netting	1,500.00	0.00
Covered bonds at 20% of nominal	80.00	80.00
Derivatives (SA-CCR EAD)	5.69	5.69
Corriemoor Bank AG	2,125.69	625.69

The SFT line nets the bank's reverse repo with Corriemoor against its repo under one master netting agreement (L4.4.03: The internal model method and SFTs): E* is 0. The facility is undrawn, at the 40% CCF; the covered bonds count at 20%.

\begin{gathered} \frac{625.69}{3{,}419.94} = 18.3\% \ \ge 10\% \\ \text{a large exposure, } \text{£}229.30\text{m} \text{ under the limit} \end{gathered}

Regulatory lens

The Basel standard is LEX10 to LEX40, in force since 1 January 2019. Statements on jurisdictions are as at 3 November 2026 as at 3 Nov 2026.

In the UK

In the PRA's Large Exposures (CRR) Part, read here in its version from 1 January 2027, the limit is 25% of Tier 1 (Article 395(1)); for exposures to institutions it is the larger of 25% and £130m, with the firm's own limit no higher than 100% of Tier 1 where £130m is larger. A bank with Tier 1 of £300m could lend another bank £130m, 43% of its Tier 1. A G-SII may not exceed 15% to another G-SII. Article 394(1) also asks for reports of exposures of £260m or more that are below 10%. Firms may exceed the limit in the trading book only with extra own funds, up to 500% of Tier 1 for ten days or less and 600% in all beyond that (Article 395(5)).

In the EU

CRR Article 395(1) sets 25% of Tier 1, or for institutions the larger of 25% and €150m (again within an internal limit of at most 100% of Tier 1), and 15% between G-SIIs, met within twelve months of designation. Article 394(1) adds reporting of exposures of €300m or more below 10%. Article 395(1) has applied in this form since the CRR2 amendments took effect on 28 June 2021.

In the US

The Federal Reserve's single-counterparty credit limits rule, adopted on 14 June 2018, caps a G-SIB's net credit exposure to another systemically important financial firm at 15% of tier 1 capital, and any covered firm's exposure to one counterparty at 25% of tier 1. As adopted it covered bank holding companies with $250bn or more of assets; since 2019 it has applied by category, to G-SIBs and Category II and III bank holding companies (12 CFR 252.70). G-SIBs had to comply from 1 January 2020 and the others from 1 July 2020, as announced in 2018.

Spark Atoms

Spark AtomThe largest counterparty is the one that does not count

The bank's exposure to the UK government is £15,960m, 4.7 times its Tier 1. It is exempt (LEX30.31), and substitution makes it larger: every gilt taken as collateral moves exposure from a bank to the sovereign. If both RiskAtoms Bank and Corriemoor were G-SIBs, the 15% limit would be £512.99m and Corriemoor would be £112.70m over.

Spark AtomTrading book names count too

The Level 3 desk holds bonds of 8 BBB issuers, £10m each at a 100% LGD (LEX30.17): 0.29% of Tier 1 apiece. Small here, but a desk can build a single-name position fast, which is why the UK and the EU let the trading book exceed the limit only with extra capital.

Spark AtomOne counterparty called unknown

When a bank cannot see what a fund holds, it adds all such exposures together as if they were one borrower, the unknown client (LEX30.45). Ignorance is treated as concentration.

Key takeaways

Exposure to one counterparty or connected group may not exceed 25% of Tier 1 (15% between G-SIBs); 10% or more is a large exposure, reported before and after CRM with the 20 largest.
Connected counterparties are one: control (over 50% of votes, or board power) or economic interdependence (such as 50% of receipts from the other), checked above 5% of Tier 1.
Exposure values use accounting values, SA-CCR, E* for SFTs and CCFs floored at 10%; eligible collateral moves the exposure to its issuer.
Sovereigns, QCCP clearing exposures and intraday interbank lending are exempt; funds and tranches are looked through when an underlying is 0.25% of Tier 1 or more.
RiskAtoms Bank's largest are Corriemoor 18.3%, Ravensholt 15.2% and Pellbridge 13.7%: no breach, though all three would be over 25% without their gilt collateral.

Reaction

Check what stuck

Question 1 · objective 1

RiskAtoms Bank's Tier 1 is £3,419.94m and its exposure to Corriemoor after CRM is £625.69m. How much more could it lend Corriemoor unsecured before reaching the limit, in £m?

£m

Question 2 · objective 4

A bank holds £50m of units in a £400m fund. The fund owns £60m of one company's bonds. What is the bank's exposure to that company through the fund, in £m?

£m

Question 3 · objective 2

A supplier earns 60% of its revenue from one customer. Both borrow from the same bank. Under LEX, what are they?

AConnected through economic interdependence, unless the bank shows the supplier could quickly replace the customerBConnected through controlCNot connected, because neither owns the otherDConnected only if both exposures exceed 10% of Tier 1

Question 4 · objective 3

Which of these counts against the 25% limit?

ATrade exposures and a default fund contribution to a non-qualifying CCPBGilts held in the banking bookCTrade exposures to a qualifying CCPDAn intraday overdraft to another bank in the payment system

Question 5 · objective 4

A bank holds 20% of a £100m securitisation tranche. The pool is £10m loans. How much exposure does it have to each underlying borrower, in £m?

£m

Glossary

Large exposure: Large exposure: the sum of a bank's exposures to one counterparty or connected group, if it is 10% of Tier 1 or more (LEX10.8).
Large exposure limit: Large exposure limit: at most 25% of Tier 1 to any counterparty or connected group, at all times; 15% between two G-SIBs (LEX20.1, LEX40.1).
Connected counterparties: Connected counterparties: two or more persons treated as one because one controls the other or because they are so economically interdependent that one's problems would bring the other's (LEX10.10).
Substitution: Substitution: where a loan is protected by eligible collateral or a guarantee, the protected part is an exposure to the collateral issuer or guarantor instead (LEX30.14).
Look-through approach (LTA): Look-through approach (LTA): assigning a bank's investment in a fund or securitisation to the underlying borrowers in proportion to its share (LEX30.43–30.49).
Unknown client: Unknown client: one notional counterparty to which a bank adds all its look-through exposures whose underlying assets it cannot identify (LEX30.45).
G-SIB: G-SIB: a global systemically important bank, on the list the Financial Stability Board publishes each year.

Deep Dives & Origins

Deep Dives

L4.2.08: Credit risk mitigation: the credit risk mitigation that decides the after-CRM figures. Intermediate.
M4.9: Supervision, stress testing and disclosure: Pillar 2, where sector and country concentration are reviewed. Intermediate.

Origins

Basel Committee on Banking Supervision, LEX10: Definitions and application, paras 10.1–10.18, version in force from 1 January 2023, bis.org.
Basel Committee on Banking Supervision, LEX20: Requirements, paras 20.1–20.4, bis.org.
Basel Committee on Banking Supervision, LEX30: Exposure measurement, paras 30.1–30.59, version in force from 1 January 2023, bis.org.
Basel Committee on Banking Supervision, LEX40: Large exposure rules for global systemically important banks, bis.org.
Prudential Regulation Authority, PRA Rulebook: Large Exposures (CRR) Part, version in force from 1 January 2027, Articles 390, 392, 394, 395, 399 and 400.
Regulation (EU) No 575/2013, Articles 394 and 395 (consolidated text on gesetze.legal); Regulation (EU) 2019/876, dates of application (EUR-Lex).
Board of Governors of the Federal Reserve System, press release on the single-counterparty credit limits final rule, 14 June 2018; 12 CFR Part 252, Subpart H, as amended in 2019 (eCFR).

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