One good example of a well-designed instrument is the Basel Committee’s standard for measuring and controlling large exposures. While Europe had similar rules in place before the Basel framework was published in April 2014, this new standard provides a global approach to regulate relations between banks and other financial institutions.
The framework was designed to protect banks from significant losses caused by the sudden default of an individual counterparty. By extending the scope of coverage beyond banks to exposures to funds, securitisation structures and collective investment undertakings, the framework has also become a useful tool in helping to strengthen the oversight and regulation of the shadow banking system. 4.