A Federal Reserve Board proposal to enact strict limits on how much credit exposure the largest banks can have to a major counterparty has significant design flaws that could raise the cost of credit, according to new analysis by the Clearing House.

Large banks have been concerned about the plan since it was released in December, arguing the single counterparty credit risk limit is too strict and would cause them to rebalance their portfolios, reducing the liquidity of the derivatives and securities lending markets.

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