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Board of Governors of the Federal Reserve System
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Board of Governors of the Federal Reserve System

Supervisory Policy and Guidance Topics

Market Risk Management

Market risk encompasses the risk of financial loss resulting from movements in market prices. Market risk is rated based upon, but not limited to, an assessment of the following evaluation factors:
  • The sensitivity of the financial institution's earnings or the economic value of its capital to adverse changes in interest rates, foreign exchanges rates, commodity prices, or equity prices.
  • The ability of management to identify, measure, monitor, and control exposure to market risk given the institution's size, complexity, and risk profile.
  • The nature and complexity of interest rate risk exposure arising from nontrading positions.
  • Where appropriate, the nature and complexity of market risk exposure arising from trading and foreign operations.

This topic also provides specific guidance on interest-rate risk, which is the exposure of a bank's current and future earnings and capital arising from adverse movements in interest rates, and the market risk capital rule, which establishes regulatory capital requirements for bank holding companies and state member banks with significant exposure to certain market risks.

Sections on this page:  

Policy Letters

Market Risk

SR 11-7
Guidance on Model Risk Management
SR 09-1
Application of the Market Risk Rule in Bank Holding Companies and State Member Banks
SR 07-11
The Fair Value Option and the Applicability of the Market Risk Capital Rule
SR 04-1
Interagency Policy on Banks/Thrifts Providing Financial Support to Funds Advised by the Banking Organization
SR 03-4
Risk Management and Valuation of Mortgage Servicing Assets Arising from Mortgage Banking Activities
SR 01-8 (SUP)
Supervisory Guidance on Complex Wholesale Borrowings
SR 99-37 (SUP)
Risk Management and Valuation of Retained Interests Arising from Securitization Activities
SR 97-4 (SUP)
Interagency Guidance on Common Questions About the Application of the Revised CAMELS Rating System
SR 96-38 (SUP)
Uniform Financial Institutions Rating System
SR 95-51 (SUP)
Rating the Adequacy of Risk Management Processes and Internal Controls at State Member Banks and Bank Holding Companies

Interest Rate Risk

SR 13-12
Commodity Futures Trading Commission (CFTC) Swap Clearing Rules
SR 12-2
Questions and Answers on Interagency Advisory on Interest Rate Risk Management
SR 10-1
Interagency Advisory on Interest Rate Risk
SR 01-14 (SUP)
Joint Agency Advisory on Rate-Sensitive Deposits
SR 96-13 (SUP)
Joint Policy Statement on Interest Rate Risk

Private Equity and Merchant Banking

SR 09-4
Applying Supervisory Guidance and Regulations on the Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding Companies
SR 02-4
Final Capital Rules for Nonfinancial Equity Investments
SR 01-27
The Use of Forward Equity Transactions by Banking Organizations
SR 00-9 (SPE)
Supervisory Guidance on Equity Investment and Merchant Banking Activities

Trading Activities

SR 13-12
Commodity Futures Trading Commission (CFTC) Swap Clearing Rules
SR 11-10
Interagency Counterparty Credit Risk Management Guidance
SR 01-13 (SUP)
Supervisory guidance relating to a change to permissible securities activities of state member banks
SR 00-13 (SUP)
Framework for Financial Holding Company Supervision
SR 99-18 (SUP)
Assessing Capital Adequacy in Relation to Risk at Large Banking Organizations and Others with Complex Risk Profiles
SR 98-25 (SUP)
Sound Credit Risk Management and the Use of Internal Credit Risk Ratings at Large Banking Organizations
SR 98-12 (SUP)
FFIEC Policy Statement on Investment Securities and End-User Derivatives Activities
SR 97-18 (GEN)
Application of Market Risk Capital Requirements to Credit Derivatives
SR 97-2 (SPE)
Section 20 Subsidiaries - Additional Clarification of Revenue Test Treatment of Interest Income
SR 93-69 (FIS)
Examining Risk Management and Internal Controls for Trading Activities of Banking Organizations
SR 90-8
Inspection Procedures for "Section 20 Subsidiaries"
 

Additional Resources

 

Manual References

  • Bank Holding Company Supervision Manual
    • Section 2126.0, "Model Risk Management"
    • Section 2126.1, "Investment Securities and End-User Derivatives Activities"
    • Section 2126.3, "Risk-Focused Supervision (Counterparty Credit Risk Management Systems)"
    • Section 2127.0, "Interest-Rate Risk (Risk Management and Internal Controls)"
    • Section 4060.3, "Consolidated Capital (Examiners’ Guidelines for Assessing the Capital Adequacy of BHCs)"
  • Commercial Bank Examination Manual
    • Section 2020.1, "Investment Securities and End-User Activities"
    • Section 4027.1, "Model Risk Management"
    • Section 4090.1, "Interest-Rate Risk Management"
    • Section 7100.1, "International-Foreign Exchange"
    • Section A.5020.1, "Condition of the Bank: Uniform Financial Institutions Rating System"
  • Trading and Capital-Markets Activities Manual
    • Section 2010.1, "Market Risk"
    • Section 3010.1, "Interest Rate Risk Management"
    • Section 3040.1, "Equity Investment and Merchant Banking Activities"
Last update: August 2, 2013