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Government agencies roll out credit risk management guidelines

Jul 13, 2011 Brian Bradley

In a recent statement, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision gave guidance to banking institutions when it comes to on the subject of counterparty credit risk management. The new guidelines seek to help these intuitions get a better idea of which parties are worthy of being given credit and which are likely to default. The documents build on previously released guidelines and include so-called "stress tests." "The guidance is intended primarily for use by banking organizations with large derivatives portfolios, as well as for supervisors as they assess and examine such institutions’ CCR management," the agencies said in a joint statement. "The guidance emphasizes that banking organizations should use appropriate reporting metrics and exposure limits systems, have well-developed and comprehensive stress testing, and maintain systems that facilitate measurement and aggregation of CCR across the organization." The documents also touched on something called Credit Valuation Adjustments. CVAs provide a "market-based" foundation for parties interested in getting a better understanding of how much a certain company is worthy.