Market Risk Management
Market risk encompasses the risk of financial loss resulting from movements in market prices. Market risk is rated based upon, but not limited to, an assessment of the following evaluation factors:
- The sensitivity of the financial institution's earnings or the economic value of its capital to adverse changes in interest rates, foreign exchanges rates, commodity prices, or equity prices.
- The ability of management to identify, measure, monitor, and control exposure to market risk given the institution's size, complexity, and risk profile.
- The nature and complexity of interest rate risk exposure arising from nontrading positions.
- Where appropriate, the nature and complexity of market risk exposure arising from trading and foreign operations.
This topic also provides specific guidance on interest-rate risk, which is the exposure of a bank's current and future earnings and capital arising from adverse movements in interest rates, and the market risk capital rule, which establishes regulatory capital requirements for bank holding companies and state member banks with significant exposure to certain market risks.
Policy Letters
Market Risk
Federal Financial Institutions Examination Council Issues Joint Statement on Managing the LIBOR Transition
Interagency Frequently Asked Questions (FAQs) on the Regulatory Capital Rule
Guidance on Model Risk Management
Application of the Market Risk Rule in Bank Holding Companies and State Member Banks
Interagency Policy on Banks/Thrifts Providing Financial Support to Funds Advised by the Banking Organization
Risk Management and Valuation of Mortgage Servicing Assets Arising from Mortgage Banking Activities
Risk Management and Valuation of Retained Interests Arising from Securitization Activities
Interagency Guidance on Common Questions About the Application of the Revised CAMELS Rating System
Uniform Financial Institutions Rating System
Rating the Adequacy of Risk Management Processes and Internal Controls at State Member Banks and Bank Holding Companies
Interest Rate Risk
Commodity Futures Trading Commission (CFTC) Swap Clearing Rules
Questions and Answers on Interagency Advisory on Interest Rate Risk Management
Interagency Advisory on Interest Rate Risk
Joint Agency Advisory on Rate-Sensitive Deposits
Joint Policy Statement on Interest Rate Risk
Private Equity and Merchant Banking
Supervisory Guidance on Equity Investment and Merchant Banking Activities
Trading Activities
Regulatory Capital Treatment of Certain Centrally-cleared Derivative Contracts under the Board's Capital Rule
Procedures for a Banking Entity to Request an Extension of the One-Year Seeding Period for a Covered Fund
Initial Examinations for Compliance with Minimum Variation Margin Requirements for Non-Cleared Swaps and Non-Cleared Security Based Swaps
Commodity Futures Trading Commission (CFTC) Swap Clearing Rules
Interagency Counterparty Credit Risk Management Guidance
Framework for Financial Holding Company Supervision
Sound Credit Risk Management and the Use of Internal Credit Risk Ratings at Large Banking Organizations
FFIEC Policy Statement on Investment Securities and End-User Derivatives Activities
Section 20 Subsidiaries - Additional Clarification of Revenue Test Treatment of Interest Income
Inspection Procedures for "Section 20 Subsidiaries"
Additional Resources
- Market Risk-Related Materials Under the Basel Framework
- Regulations
Manual References
- Bank Holding Company Supervision Manual
- Section 2126.0, "Model Risk Management"
- Section 2126.1, "Investment Securities and End-User Derivatives Activities"
- Section 2126.3, "Risk-Focused Supervision (Counterparty Credit Risk Management Systems)"
- Section 2127.0, "Interest-Rate Risk (Risk Management and Internal Controls)"
- Commercial Bank Examination Manual
- Section 1200.1, "Uniform Financial Institutions Rating System and the Federal Reserve's Risk-Management Rating"
- Section 2500.1, "Investment Securities and End-User Activities"
- Section 3300.1, "Interest Rate Risk Management"
- Section 4027.1, "Model Risk Management"
- Trading and Capital-Markets Activities Manual
- Section 2010.1, "Market Risk"
- Section 3010.1, "Interest Rate Risk Management"
- Section 3040.1, "Equity Investment and Merchant Banking Activities"
FAQs
The Federal Reserve's supervision activities include examinations and inspections to ensure that financial institutions operate in a safe and sound manner and comply with laws and regulations. These include an assessment of a financial institution's risk-management systems, financial conditions, and compliance.
What are the three main responsibilities of the Federal Reserve providing policy and supervising? ›
You have learned about the Fed's three main responsibilities—conducting monetary policy, supervising banks, and providing financial services.
What is the main responsibility of the Fed group of answer choices? ›
The Fed's main duties include conducting national monetary policy, supervising and regulating banks, maintaining financial stability, and providing banking services.
Which of the following statements responses does the mission of the Federal Reserve bank include? ›
Final answer:
The mission of the Federal Reserve includes conducting monetary policy and providing banking services to commercial banks, but not being a profit generating center.
What is the main purpose of the Fed in its supervisory role? ›
The Fed has supervisory and regulatory authority over many banking institutions. In this role the Fed 1) promotes the safety and soundness of the banking system; 2) fosters stability in financial markets; and 3) ensures compliance with laws and regulations under its jurisdiction.
What does the Fed do in its supervisory role? ›
The Federal Reserve is responsible for supervising--monitoring, inspecting, and examining--certain financial institutions to ensure that they comply with rules and regulations, and that they operate in a safe and sound manner.
What does the Fed regulate and supervise? ›
The Board of Governors of the Federal Reserve System has supervisory and regulatory authority over a wide range of financial institutions, including state-chartered banks that are members of the Federal Reserve System (state member banks), bank holding companies, thrift holding companies and foreign banking ...
What are the 3 main responsibilities of the federal government? ›
What does the federal government do? Only the federal government can regulate interstate and foreign commerce, declare war and set taxing, spending and other national policies.
Who is the Federal Reserve responsible for supervising? ›
Bank holding companies constitute the largest segment of institutions supervised by the Federal Reserve, but the Federal Reserve also supervises state member banks, savings and loan holding companies, foreign banks operating in the United States, and other entities. international banking and financial business.
What are the six responsibilities of the Fed? ›
A nation's central bank is usually given a mix of responsibilities including determining the money supply, supervising banks, providing banking services for the government, lending to banks during crises, and promoting consumer protection and community development.
The Federal Reserve's board of governors is responsible for overseeing the broader Fed system, as well as supervising and regulating financial institutions. The board is made up of seven officials, including the chair and two vice chairs, who are appointed by the president and confirmed by the Senate.
What are the two main goals of the Federal Reserve System? ›
The Federal Reserve System has been given a dual mandate—pursuing the economic goals of maximum employment and price stability.
What is the major liability of the Federal Reserve? ›
Historically, Federal Reserve notes have been the largest liability on the Federal Reserve's balance sheet. A U.S. depository institution, when it needs more currency to meet its customers' needs, asks a Reserve Bank to send it more Federal Reserve notes.
What is the major asset of the Federal Reserve? ›
Treasurys and other securities, on the other hand, are considered assets. Securities held outright make up about 94 percent of the Fed's total balance sheet. Nearly two-thirds are Treasury securities, including shorter-term Treasury bills, notes and bonds. Mortgage-backed securities make up another almost one-third.
Who decides the federal funds rate? ›
The Federal Open Market Committee sets the federal funds rate. The FOMC sets the target rate range, and sets the Fed rate to be aligned with that target range.
Which of the following is the most important responsibility of the Federal Reserve system? ›
The most important function of the Federal Reserve System is carrying out monetary policy. The Federal Open Market Committee (FOMC) is the Fed policy-making body that meets eight times a year to make monetary policy decisions.
What is the most important responsibility of the Board of Governors according to the Federal Reserve? ›
The Board of Governors guides the operation of the Federal Reserve System to promote the goals and fulfill the responsibilities given to the Federal Reserve by the Federal Reserve Act. All of the members of the Board serve on the FOMC, which is the body within the Federal Reserve that sets monetary policy.
What is the main responsibility of the Fed quizlet? ›
he Federal Reserve System's responsibilities include: conducting monetary policy; supervising and regulating financial institutions; providing services to depository institutions, the federal government, and the public.
What is the most important role of the Federal Reserve quizlet? ›
The most important role of the Federal Reserve System is.. regulating the supply of money.
