The Joint Forum released the final version of its paper examining the development of the credit risk transfer phenomenon over the past couple of years. It recommends a series of measures designed to improve disclosure, risk management and supervision of credit risk transfer.

The initial report was published for comment on April 1. The Joint Forum reports that market participants provided direct feedback on the consultative draft during meetings held in London and New York last May. The comments provided by participants or sent directly to the Joint Forum secretariat reflected general support for the report’s conclusions, it reported. It also noted that changes to the report based on the consultation are not substantial, but improved the final report.

“This paper is contributing significantly to the understanding of the causes of the credit market turmoil. Particularly relevant is the report’s focus on two financial instruments that have been used widely to transfer credit risk: collateralised debt obligations referencing ABS (ABS CDOs) and collateralised loan obligations (CLOs),” said John Dugan, chair of the Joint Forum and US Comptroller of the Currency.

“While it is critical to understand the causes of the market turmoil, market participants must also focus on actions to take to increase the resilience of markets and institutions going forward. To that end, this report provides a number of new recommendations applicable to all market participants that enhance the earlier recommendations of the Joint Forum’s 2005 Credit Risk Transfer paper,” Dugan added. “I urge all significant participants in these markets to implement these recommendations. In 2009, the Joint Forum will survey these participants to assess the extent to which they have done so.”

The Joint Forum was established in 1996 under the aegis of the Basel Committee on Banking Supervision, IOSCO, and the IAIS to deal with issues common to the banking, securities and insurance sectors, including the supervision of financial conglomerates.