BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C.  20551
			DIVISION OF BANKING SUPERVISION AND REGULATION
			SR 98-33 (SUP) December 3, 1998

	TO THE OFFICER IN CHARGE OF SUPERVISION AND INTERNATIONAL           SUPERVISORS AND EXAMINERS AT EACH FEDERAL RESERVE BANK           AND TO INSTITUTIONS SUPERVISED BY THE FEDERAL RESERVE           THAT FILE THE COUNTRY EXPOSURE REPORT SUBJECT: Interagency Country Risk Management Study                      Attached is an executive summary of the findings of a study by the Interagency Country Exposure Review Committee (ICERC) on the country risk management practices of U.S. banks. ICERC is composed of examiners from the Federal Reserve System, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC).  During the course of regular examinations and visitations, examiners participating in the study collected information on the country risk management processes in a sample of internationally active multinational, regional, and small banks in the United States.  A full report of the study is available on the Board's public web site at http://www.federalreserve.gov/boarddocs/staffreports.                      The report is not intended to depict the entire spectrum of bank country risk management practices, nor does it establish minimum regulatory requirements for country risk management.  However, because it describes the wide variety of approaches used by banks to measure, monitor, and control the risk associated with their foreign exposures, U.S. banking institutions in your district may find the study useful to compare the report's finding with their own practices.                       The paper makes no judgement as to the adequacy for individual banks of the specific procedures described in the paper.  It is the task of supervisors and examiners to evaluate during the examination process the adequacy of bank procedures in the context of the scope and nature of an individual bank's business.  The bank regulatory agencies are reviewing their supervisory procedures for evaluating the adequacy of country risk management practices and intend to issue further guidance on this matter.  Similarly, banks should be reviewing their procedures in light of recent experience and the rapidly evolving nature of risk management practices.  In this regard, this paper may provide a useful benchmark as to the current state of country exposure risk-management practices.                      This SR letter and executive summary from the report should be made available to the banks in your district that participated in the study, other banks with cross-border exposure, as well as international bank examiners for their consideration.  The OCC and FDIC are also releasing this report to the internationally active banks under their supervision                      If you have any questions, please contact Michael Martinson, Deputy Associate Director, (202) 452-3640, or Joseph Sciortino, Supervisory Financial Analyst, (202) 452-2294. Richard Spillenkothen Director ATTACHMENT TRANSMITTED ELECTRONICALLY BELOW Common Practices for Country Risk Management in U.S. Banks Interagency Country Exposure Review Committee Country Risk Management Sub-Group November 1998 EXECUTIVE SUMMARY Overall Conclusion Country risk management processes and practices vary significantly among U.S. banks.  While some general similarities can be identified, large differences exist in how the banks identify, measure, set limits for, monitor, and manage country risk exposures. Nonetheless, the ICERC's informal survey identified the following common attributes of existing country risk management processes. Country Risk Management Process and Policies All banks have developed formal country risk management programs.  Most programs are centralized. Banks usually have adopted formal country risk management policies that are board approved. All banks have formal internal country risk monitoring and reporting mechanisms.  The type and content of country risk management reporting to senior management, board appointed committees, and the board of directors vary considerably. Typically, country risk management is integrated with credit risk management.  However, several large banks integrate country risk management into their overall risk management process. Responsibility for country risk management generally lies with either a senior country risk officer or a high-level country risk committee. Most bank country managers are responsible for recommending specific country marketing strategies and risk tolerances. Several multinational and regional banks have established procedures to deal with deteriorating country risk situations.  But, the most common practice relies on informal communication lines between experienced managers in times of crisis.
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