What is a Connected Counterparty?

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Definition of Connected Counterparty:

In some cases, a bank may have exposures to a group of counterparties or clients with specific relationships or structural dependencies so that if one of them were to fail, all of them would most likely fail.

A group with this type of connection, under the regulation, must therefore be treated as a single counterparty.

In a case such as this, the sum of a firm’s exposures to all the individual entities included within a group of connected counterparties is subject to the large exposure limit and to other regulatory reporting requirements.