Capital Markets Examiner School, Providence, RI

Governance

Examiners should review policies and procedures related to derivative and hedging activities. The Board of Directors should review and approve the policies annually, and the policies should contain the following information.

 Approved counterparties  Position limits  Maturity parameters  Counterparty credit guidelines and collateral requirements

 Designated potential credit exposure methods for specific derivative types  Designated individuals authorized to execute transactions and limits of authority  Policies and procedures related to the monitoring of collateral positions  Guidelines for effectiveness testing

Governance

The ALCO/Board minutes should reflect sound risk management practices evidenced by discussion of the following:

 Strategy  Benefits  Risks  Adherence to aggregate credit exposure limits

Do ALCO/Board reports indicate current derivative positions, potential credit exposures, fair values, and collateral reports?