The Counterparty Risk Management Policy Group in the US has issued a second report, which is of more than usual interest after recent ratings downgrades, and developments in the credit derivatives markets. Risk areas under discussion include stress testing, managing lending levels and collateral, and clearing the backlog of unsettled trades.
The report, entitled: “Toward Greater Financial Stability: A Private Sector Perspective,” was prepared by a group of senior officials from a number of financial institutions. It aims to reduce the risks of systemic financial shocks and limit the damage of such shocks when they occur.
The Report focuses on risk management, risk monitoring and enhanced transparency in the context of today’s complex and interconnected global financial system.
The Policy Group believes that substantial progress has been made in recent years by market participants in many of the areas discussed by the Report. Nonetheless, it views its recommendations and guiding principles as further elevating the standards of practice that financial institutions should follow.
Commenting on the report, E. Gerald Corrigan, Managing Director, Goldman Sachs & Co., and Chairman of the Counterparty Risk Management Policy Group said: “The scope and reach of the Report is a great tribute to the members of the Policy Group. Their efforts have been truly extraordinary not only in terms of the rigor and quality of their work but, more importantly, in the statesmanship they displayed in their willingness to put aside narrow interests and produce a Report that unquestionably serves the public interest.”
Corrigan called upon senior management of individual financial institutions to review the recommendations contained in the Report and, where appropriate, take steps to bring their business practices in line with these standards.
In the course of its deliberations, the Policy Group met twice with representatives of supervisory and regulatory bodies from various parts of the world. The purpose of those informal meetings was to keep the official sector informed of the progress of the Policy Group’s work and to share with them the broad thrust of the recommendations and guiding principles under consideration. The Policy Group stresses that the individuals in attendance were not representing nor speaking on behalf of their employers, and neither those individuals nor their employing agencies were asked to endorse the Report or any of its component parts.