What The Federal Reserve reminds firms of safe and sound practices for counterparty credit risk management in light of the Archegos Capital Management default requires
In light of the Archegos Capital Management default, which caused over $10 billion in losses across several large banks, the Federal Reserve is issuing guidance to remind firms of supervisory expectations for counterparty credit risk management. This letter is intended for use by banking organizations with large derivatives portfolios and relationships with investment funds, as well as for supervisors. It is generally not applicable to community banking organizations. The guidance addresses concerns with practices where firms accept incomplete and unverified information from investment funds, particularly regarding strategy, concentrations, and relationships with other market participants. The core obligations emphasize that firms should obtain and verify critical information regarding a fund's size, leverage, and concentrated positions. If a client refuses to provide this information, firms should reconsider the relationship or apply strong compensating measures, such as more stringent contractual terms. The Federal Reserve also reminds firms that poor communication frameworks, inadequate risk management functions, and ineffective governance hamper their ability to identify and address risk. Firms must ensure risk management functions have the experience and stature to control risks, and that margin terms are appropriate, risk-sensitive, and do not prevent the firm from improving its margin position or closing out positions quickly.
Pillar: Banking & Global Finance · Authority: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, DIVISION OF SUPERVISION AND REGULATION · Version: 1.0.0 · Last updated:
Primary source: https://www.federalreserve.gov/supervisionreg/srletters/sr2119.pdf
SHA-256 integrity: 2b37be43739358cd015244634b7a966cecc1b3c5efc2af1cd4197029bf387a24
Primary Citations — 8 traced to source
- Applicability: This letter applies to institutions supervised by the Federal Reserve that have large derivatives portfolios and relationships with investment funds.
- Due Diligence Concern: The Federal Reserve is concerned with practices where... firms accept incomplete and unverified information from the fund, particularly with regard to the fund's strategy, concentrations, and relationships with other market participants.
+ 6 more citations (full bibliography, deterministic workflow, actionable schema and crosswalks) included in the vault unlock — $0.01 via Skyfire / L402 / Direct Base USDC.
Access
- Discovery (free): /api/v1/nodes/frb-sr-21-19-counterparty-credit-risk.json — 6-field metadata
- Vault (full node): /api/v1/vault/nodes/frb-sr-21-19-counterparty-credit-risk.json — full 13-key payload, $0.01 USDC (L402/Skyfire/Direct Base)
- Canonical URL: https://bidda.com/intelligence/frb-sr-21-19-counterparty-credit-risk
- Back to registry: Browse all 10,099 compliance nodes