Date: March 24, 2014
Description: Comptroller's Handbook Supplemental Examination Procedures
The Office of the Comptroller of the Currency (OCC) is supplementing the examination procedures in the “Risk Management of Financial Derivatives” booklet of the Comptroller’s Handbook. Since the publication of “Risk Management of Financial Derivatives,” national banks (particularly large banks) have significantly expanded their end-user derivatives and trading activities, requiring focused examination procedures to detect, monitor, and evaluate these activities’ risks.
The procedures apply to examinations of banks that are active end-users of derivatives or that have significant trading activity. The procedures augment and replace the general procedures for evaluating banks’ participation in the derivatives markets and setting the examination scope. They offer more detail than does the existing booklet on identifying the risks created by end-user derivatives and trading activities.
The procedures include
- minimum scope procedures for the policies, procedures, systems, controls, and governance structures related to end-user derivatives and trading activity, including internal audit, the board of directors’ risk committee, market risk management, valuation, and model governance.
- ongoing monitoring of portfolios with end-user derivatives and trading positions to identify new and changing risks.
These procedures incorporate the OCC’s experience from its supervision of end-user derivatives and trading activities. They complement the OCC’s market risk capital rule and the OCC’s rule implementing section 13 of the Bank Holding Company Act.
Note for Community Banks
These procedures are intended primarily for use at large, complex banks that actively use derivatives for both trading and risk management purposes. The procedures do not apply to examinations of community banks, unless the bank is a significant end-user of derivatives. Even in those cases, only a subset of the procedures will apply.
Please contact Kurt Wilhelm, Director, Financial Markets Group, at (202) 649-6437; or Roman Goldstein, Senior Attorney, Securities and Corporate Practices Division, at (202) 649-5510.
John C. Lyons Jr.
Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner