July 5 (Bloomberg) -- U.S. banking regulators issued new guidance on counterparty credit risk management for large banks, stressing the need for adequate controls and measurement systems.
The Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Office of Thrift Supervision said today the financial crisis of 2007-2009 “revealed weaknesses” in counterparty credit risk management “at many banking organizations.”
The regulators pointed to the “shortcomings” in the ability of banks to determine exposures in a timely way, and noted “poor selection” of counterparty credit risk metrics.
Counterparty credit risk “management techniques have evolved rapidly over the last decade, along with increased complexity of derivative instruments,” the regulators said. “Implementation of sound practices has been uneven across business lines and counterparty types.”
Regulatory guidance, while not binding like a rule, is used by bank examiners to set standards for financial institutions.
--Editors: James Tyson, Kevin Costelloe
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