ORLANDO -- Comptroller of the Currency Eugene A. Ludwig told thrift executives here to beware of derivatives.
"Derivatives pose many of the same risks present in other financial translations -- credit risk, market risk, liquidity risk, legal risk, operations and systems risk, and yes, even reputation risk," Mr. Ludwig told members of the Savings and Community Bankers of America attending the association's annual convention.
"But for certain derivatives instruments, those risks may be present in less intuitive ways," he added,
The trade group's incoming chairman, David E.A. Carson, said: "To my knowledge, the thrift industry has used them as hedging vehicles and not as speculative vehicles."
He said that for the thrift industry, derivatives are not a major problem.
Derivatives are financial contracts whose returns are derived from performance of currencies, interest rates, and commodities. Mr. Ludwig also warned institutions to rely on good judgment rather than solely on mathematical models to evaluate their derivatives holdings and purchases.
"Recognize the importance of good judgment and the limitations of the mathematics," he said.
