OCC to Issue Exam Guidelines on Derivatives Risk

The Comptroller's office will soon issue risk management guidelines to help national bank examiners avert a Barings-type collapse in the United States, a top agency official said Thursday.

"We will be issuing guidance to our examiners that will establish a consistent and comprehensive set of guidelines and procedures for use in examining the exchange-traded futures and options brokerage activities of bank subsidiaries," said Douglas E. Harris, senior deputy comptroller for capital markets.

Speaking at a meeting of the International Swaps and Derivatives Association in New York, Mr. Harris said the Office of the Comptroller of the Currency also will instruct examiners on how to tell if a bank's activities in emerging foreign markets are being conducted safely and soundly.

"This guidance will focus generally on, among other areas, risk management guidelines, systems, operations, capital allocation schemes, risk limits, and the role of senior management in banks' emerging markets activities," he said.

Barings, a British merchant bank, failed because of trading losses incurred by an employee in its Asian futures brokerage subsidiary.

Mr. Harris said that while the soon-to-be-issued guidelines are in part a response to the Barings fiasco, they also fit in with his agency's recent approach to regulating derivatives.

"It is a continuation of a policy we adopted two years ago of 'no surprises' risk management - a policy which has focused on providing guidance to banks rather than proscribing, prohibiting, or issuing burdensome regulations on certain products or activities," he said.