CRMPG III out with risk management report

The Counterparty Risk Management Policy Group III report addresses the need for reform to address systemic risk

NEW YORK – The Counterparty Risk Management Policy Group III (CRMPG III) has released a report entitled Containing systemic risk: the road to reform. This is the latest in a series published by the policy group, which includes senior management from major financial institutions.

The report, published in response to the credit crisis, recommends a number of changes aimed at mitigating risk in financial sectors and urges major financial institutions to "analyse their internal policies, procedures and practices against the recommendations and reforms outlined in the report", and to monitor their progress in meeting these recommendations.

The report lays out five “core precepts" that all large integrated financial intermediaries should follow in implementing the CRMPG III's recommendations. These are the basics of corporate governance, risk monitoring, estimating risk appetite, focusing on contagion and enhanced oversight.

The report focuses on the four key areas it deems the most important and timely, and where it could make the greatest contribution. These areas include: a reconsideration of the standards for consolidation under US generally accepted accounting principles for entities off balance sheet moving onto balance sheet; measures to better understand and manage high-risk financial instruments; enhancements to risk monitoring and management; and a series of sweeping measures to enhance the resiliency of financial markets generally and the credit markets in particular, with a special emphasis on over the counter derivatives and credit default swaps. The report also highlights important "emerging issues" that will require close attention in the period ahead.

The group attempted to frame its recommendations in specific terms that have operational content and foster accountability so senior management, boards, and supervisors can evaluate their progress against these goals.

Managing director of Goldman Sachs and co-chairman of the CRMPG III, Gerald Corrigan, says: "The achievement of the policy group and its working groups in completing such a vast and complex undertaking in three and a half months is nothing short of remarkable. It is both necessary and urgent that the private sector, in collaboration with the official sector, begin immediately to implement these reforms, some of which will take well over a year to be fully accomplished."

Click here to view the report.