The Office of the Comptroller of the Currency on Monday advised national banks to institute risk management systems for credit derivatives, a new breed of instruments designed to reduce a bank's exposure to loan concentration risk.

In a bulletin issued to national banks, the OCC said credit derivatives offer substantial risk management benefits but must be treated with the same care as any other hedging instrument. That means banks should install systems to monitor and control risks stemming from these instruments. For example, the guidelines recommended that credit derivatives activities be reviewed by bank employees not directly involved in the transactions.

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