Monday, August 11, 2008

Counterparty Risk Management Policy Group Releases Report

On August 6, the Counterparty Risk Management Policy Group (CRMPG - technically, CRMPG III) released a report: “Containing Systemic Risk: The Road to Reform."

As noted in CRMPG’s press release, its recommendations (summarized in CRMPG’s Executive Summary) are laid out according to " five 'Core Precepts,' which the Policy Group regards as relatively simple, readily understandable and forward-looking standards upon which the management of large integrated financial intermediaries must rest. The precepts are:

Precept I: The Basics of Corporate Governance
Precept II: The Basics of Risk Monitoring
Precept III: The Basics of Estimating Risk Appetite
Precept IV: Focusing on Contagion
Precept V: Enhanced Oversight"

CRMPG's report was the subject of an article in the Aug. 7 WSJ, “Debt Market Fix? Try 60?” by Jon Hilsenrath and Serena Ng, which notes, “The group, co-chaired by Gerald Corrigan, a Goldman Sachs managing director and former president of the Federal Reserve Bank of New York, laid out 60 proposals, including that banks be forced to account for more assets on their balance sheets, face tougher standards for selling complex debt instruments, accelerate overhauls of the credit-default-swap market, and implement tougher standards for managing their own risk and liquidity.”

WSJ’s Hilsenrath and Ng added, “The group… includes representatives from nearly every big U.S. bank and broker. It has issued reports in past years -- most notably one in 2005 -- that weren't fully embraced by Wall Street. The 2005 report included warnings about the workings of the collateralized-debt-obligation market, which subsequently experienced a boom and bust that has cost Wall Street hundreds of billions of dollars in write-downs and losses.”

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