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Board of Governors of the Federal Reserve System
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Press Release
December 20, 2013

Federal Reserve Board advises large financial
institutions to carefully evaluate transactions
intended to reduce risk
For immediate release
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The Federal Reserve Board on Friday advised large financial institutions
to carefully evaluate transactions intended to reduce risk to ensure that,
if risks are shifted to a thinly capitalized counterparty or affiliated entity of
the firm, any residual risk is effectively captured in the firm's internal
capital adequacy assessment. Examiners will closely consider such
transactions, and potential residual risks, when evaluating an
institution's capital adequacy.
Following inquiries from banking institutions and investors, the Board
issued the guidance to clarify that while efforts to reduce risk can be
positive, certain transactions can result in residual risks to the firm that
may not be accounted for in risk-based capital measures. Institutions
should be able to demonstrate that the residual risks are fully reflected in
their internal assessment of capital adequacy and that they maintain
sufficient capital to account for such risks.
Supervisors will closely scrutinize risk-transfer transactions that result in
substantial reductions in risk-weighted assets when assessing capital
adequacy, including during the annual Comprehensive Capital Analysis
and Review of the 30 largest financial institutions.
SR Letter 13-23

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Last Update: December 20, 2013

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BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM
20th Street and Constitution Avenue N.W., Washington, DC 20551