Banks identified as systemically important to the global economy face tighter rules on how much business they can do with each other as part of a push to limit the chance a single failure would drag down multiple lenders.
The Basel Committee on Banking Supervision published rules that from 2019 will cap lending from one too-big-to-fail bank to another at an amount no greater than 15 percent of its capital.
Such limits "can directly contribute toward the reduction of system-wide contagion risk," the Basel group said in a statement on its website. The tougher rules are needed to protect banks from "traumatic losses caused by the sudden default of an individual counterparty or group of connected counterparties."
The Basel group's overhaul of its so-called large-exposure rules are part of regulatory measures to address the risks posed by the largest banks. The Financial Stability Board has drawn up a list of 29 lenders including HSBC, JPMorgan Chase and Barclays that face higher capital requirements because of the risk their failure poses to the global economy.
Bank of England Governor Mark Carney, who chairs the FSB, said this month that "further intense work" is needed on rules for too-big-to-fail banks.
Today's plans update existing Basel recommendations that cap the amount of business bank's do with a single counterparty at no more than 25 percent of its capital.
The revised measures retain the 25 percent rule, while fleshing out how it should be applied, and toughening the standard by tightening the definition of capital.
The update is needed to address "a considerable variation of practice" among different regulators, the Basel group said.
The Basel committee brings together regulators from 27 nations, including the U.S., U.K. and China, to coordinate rules for banks.