Global regulators have proposed tougher rules from 2019 to stop big banks from building a level of risk on their books that would make them vulnerable if a major customer goes bust.
In an attempt to gain transparency on bank assets and facilitate speedy action from regulators in the event of a crisis, the global Basel Committee on Banking Supervision is proposing much tougher rules on banks' exposure to other banks.
The aim is also to reassure markets that when a bank is in trouble, other banks' exposure to it would be relatively limited to avoid the type of contagion seen during the 2008-09 financial crisis.
Big losses at some banks on asset-backed securities in 2008 prompted investors to withdraw funds from a wide range of lenders, exacerbating the market turmoil.
Leaders of the world's top 20 economies called on the committee at the height of the crisis in 2009 to reinforce banking rules to make markets safer.
Basel is now proposing to impose a stricter exposure limit on big banks and a requirement for more detailed reporting on exposures.
"This is to ensure that the large-exposures standard is effective and consistent for internationally active banks," a committee statement said.
"On this basis, breaches of the limit should be exceptional events, should be communicated immediately to the supervisor and should, normally, be rapidly rectified."
Basel said that the very biggest banks would only be allowed to conduct business with another bank of similar size up to the equivalent of 10-15 percent of its core capital, well below the 25 percent limit recommended at present.
Financial experts say that the new rules could have a negative impact for global banking groups that do business with their large subsidiaries across the world.
"The knock-on effect is another dampener on the flow of capital around the system. It's a bit more grit in the machine," said Richard Barfield, of accountant and consultancy PwC. "What is coming into focus is the whole balance between the supervisory appetite for risk and the need to have a financial system that can support international business activity and commerce efficiently."
The new rules would come into force on Jan. 1, 2019, when banks will have to comply fully with Basel's other rules on higher capital requirements.
Basel said that supervisors should consider asking banks to begin reporting large exposures before 2019 to identify whether they are having any difficulties in moving to the new regime.
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