Twelve of the country's biggest commercial and investment banks formed an advisory group Thursday that will develop industry standards for managing investment risk in capital markets.

Creation of the Counterparty Risk Management Policy Group comes after the turbulence last year in international capital markets that led to a $3.6 billion bailout of hedge fund Long Term Capital Management LP.

E. Gerald Corrigan, managing director and co-chairman of the risk committee at Goldman, Sachs & Co., and Stephen G. Thieke, managing director and chairman of the risk management committee at J.P. Morgan & Co., will lead the policy group.

Other members are executives from Barclays Bank, Bear, Stearns & Co., Chase Manhattan Bank, Citigroup, Credit Suisse First Boston, Deutsche Bank, Lehman Brothers, Merrill Lynch, Morgan Stanley Dean Witter, and Warburg Dillon Read.

The Policy Group this spring plans to deliver guidelines for banks, securities firms, and others who hedge risks. The guidelines will promote best practices and provide direction on what types of information should be reported to regulators, according to a press release announcing the Policy Group's formation.

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