From the Regulators

Report sets out several recommendations for regulators

By James Langton |

Global policymakers have published a new report that examines the current state of credit risk management, and makes several recommendations for regulators to help guard against systemic risk.

The Joint Forum — which includes the Basel Committee on Banking Supervision (BCBS), the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS) — published the report today following a survey of regulators and firms in the banking, securities and insurance sectors to gain insight into credit risk management since the global financial crisis.

"The survey was not meant to be a post-mortem of the events leading up to the financial crisis, but rather a means to provide insight into the current supervisory framework around credit risk, the state of credit risk management at firms and implications for the supervisory and regulatory treatments of credit risk," it says.

The report sets out several recommendations for regulators, including that they should: avoid over-reliance on internal models for credit risk management and regulatory capital; be vigilant to increased risk taking amid the "search for yield" in a low rate environment;  be aware of the growing need for high-quality liquid collateral to meet margin requirements for OTC derivatives; and, consider whether firms are accurately capturing central counterparty exposures as part of their credit risk management.

"The challenges for credit risk management have evolved considerably in the last years. This report provides important new insights into the latest developments in credit risk management against the backdrop of a reformed regulatory framework and the emergence of new risks," said Thomas Schmitz-Lippert, chairman of the Joint Forum and executive director, international policy at Germany's Financial Supervisory Authority (BaFin).

Comments on the report are due by March 4.