OCC Formally Launches Supervision by Risk Program With Distribution of Large Bank Supervision Handbook

WASHINGTON, D.C. — Comptroller of the Currency Eugene A. Ludwig this week formally launched the OCC's Supervision by Risk program with the distribution of the Large Bank Supervision Handbook. The handbook outlines how OCC examiners will identify and assess nine basic risks of banking. The handbook implements the Supervision by Risk program announced by Mr. Ludwig in a speech at Georgetown University in September 1995.

"Today, sound risk management by banks and effective supervision of the most important risks facing banks are crucial if we are to ensure the long-term strength and vitality of the national banking system," Mr. Ludwig said.

OCC examiners responsible for supervising large national banks (those with total assets of $1 billion or more) will use the new handbook to develop their supervisory strategies and plans for future examinations. While the OCC has been examining banks based on a variety of risks for several years, Mr. Ludwig said, the new handbook marks the national standardization of this process. It is designed to focus OCC's examinations on the areas of highest risk in a bank's activities and will be implemented at a time when banks themselves are increasingly using risk management techniques to track their own risks.

The large bank handbook, distributed this week to bankers and examiners, details the factors examiners will use to evaluate the following categories of risk: credit, interest rate, liquidity, price, foreign exchange, transaction, compliance, strategic and reputation.

Within each risk category, examiners will assess the quantity of risk and quality of risk management, and identify whether risk is increasing, stable, or decreasing in each bank. This assessment incorporates both a current and prospective view of an institution's overall risk profile. The new handbook also emphasizes two-way communication about bank risks between bankers and examiners.

"By delineating and defining each risk, bankers and examiners will, for the first time, be able to use the same terminology when discussing risk-related issues, and examiners will be more consistent in their approach to similar institutions," said Comptroller Ludwig.

To obtain copies of the Large Bank Handbook, send a written request along with a check for $6.00 per booklet to the Office of the Comptroller of the Currency, P.O. Box 70004, Chicago, Illinois, 70673-0004.

Related Link

• Categories of Risk (PDF)