Magazine article American Banker

Fed to Give Examiners Guidelines on Swaps

Magazine article American Banker

Fed to Give Examiners Guidelines on Swaps

Article excerpt

WASHINGTON -- The Federal Reserve has developed a new set of guiding principles to help bank examiners regulate the use of derivatives, Fed governor Susan M. Phillips said Tuesday.

The agency is also drafting a supervisory letter to "provide guidance to both examiners and banking organizations about risk management and internal controls for derivatives," she said in a speech to Women in Housing and Finance.

The Fed governor likened the Fed's supervisory letter to the Comptroller of the Currency's recent circular on risk management of financial derivatives, which establishes guidelines but does not require specific risk management techniques.

Concern for Customers

Ms. Phillips also told the professional association that, like the Comptroller, the Fed wants to make sure banks are not selling derivatives to unsophisticated customers. But she added that most players in the derivatives markets are larger and sophisticated companies.

In addition, the Fed - along with other banking regulators - is working on a plan to require stepped-up disclosure of derivatives activities by banks, she said. The new disclosures could include a description of derivatives activity and the impact of derivatives on banks' balance sheets.

"According and disclosure are critical issues, in my view, because they are the key to better asessments of derivatives activity by investors, as well as supervisors and managers," Ms. Phillips said.

Monitoring Riskiest Players

Separately, Rep. …

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