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Subject: Counterparty Credit Risk Management
Date: July 6, 2011
To: Chief Executive Officers of All National Banks, Department and Division Heads, and All Examining Personnel
Description: Interagency Supervisory Guidance
The Office of the Comptroller of the Currency (OCC) has adopted the attached Interagency Supervisory Guidance on Counterparty Credit Risk Management to help ensure that financial institutions implement effective counterparty credit risk (CCR) management programs. The guidance, issued jointly by the OCC, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, builds on existing supervisory guidance and outlines effective industry practices for managing CCR.
CCR is the risk that the counterparty to a transaction could default or deteriorate in creditworthiness before the final settlement of a transaction. Unlike the credit risk of a loan, in which only the lender faces the risk of loss, CCR creates a bilateral risk of loss. The guidance addresses some of the weaknesses highlighted by the recent financial crisis and reinforces sound governance of CCR management practices through prudent board and senior management oversight.
This guidance is intended primarily for use by banks with large derivatives portfolios, as well as by supervisors as they assess and examine such institutions’ CCR management activities. The guidance emphasizes that financial institutions should use appropriate reporting metrics and exposure limit systems, have well-developed and comprehensive stress testing, and maintain systems that facilitate measurement and aggregation of CCR throughout the organization.
For further information on this guidance, please contact Kurt Wilhelm, Director, Financial Markets Group, at (202) 874-4660; or Michael Sullivan, Director, Risk Analysis Division, at (202) 874-5250.
David K. Wilson