Joint Forum of International Regulatory Organizations Issues Publication on Credit Risk Management across Sectors

The Joint Forum of the Basel Committee on Banking Supervision, IOSCO and the International Association of Insurance Supervisors issued a publication titled "Developments in Credit Risk Management Across Sectors: Current Practices and Recommendations."

The Joint Forum analyzed the results of surveys of 15 supervisors and 23 firms in the banking, securities and insurance sectors, and focused on the current supervisory framework around credit risk, the state of credit risk management at firms, and the implications for the supervisory and regulatory treatments of credit risk.

Based on the responses from the survey, the Joint Forum made recommendations in the report that included the following:

• firms should utilize caution against overreliance on internal models for credit risk management and regulatory capital, and models should be evaluated in conjunction with "sophisticated modeling to provide a more complete picture";
• supervisors should be cognizant of growing risk-taking behaviors when generating a "search for yield" through a variety of mechanisms;
• supervisors should be aware of the growing need for high-quality liquid collateral to meet margin requirements for OTC derivatives sectors; and
• supervisors should consider whether firms are capturing central counterparty exposures accurately as part of their credit risk management.

The Joint Forum recommended that the Parent Committees of the forum (BCBS, IAIS and IOSCO) consider taking steps to monitor and evaluate the availability of such collateral in their work, while reducing systemic risk and promoting central clearing through the collateralization of counterparty credit risk exposures that stem from non-centrally cleared OTC derivatives.

Comments on the publication must be submitted by March 4, 2015.

See: "Developments in Credit Risk Management across Sectors: Current Practices and Recommendations"; Press Release. Click here to submit comments on the publication.