Commercial Bank
Examination Manual
April 2009 Update
The April 2009 update to the Commercial Bank Examination Manual has been published (supplement no. 31). The manual comprises the Federal Reserve System's regulatory, supervisory, and examination guidance for state member banks. The new supplement includes guidance on the following subjects:
- Policy on Payment System Risk. Section 4125.1, "Payment System Risk and Electronic Funds Transfer Activities," has been revised to update the information on the different types of payment systems such as the Clearing House Interbank Payments System (CHIPS), automated clearinghouse (ACH), and Fedwire Securities Services. The section incorporates major changes to the "Federal Reserve Policy on Payment System Risk" (PSR Policy) that were adopted by the Board on December 19, 2008 (certain changes will be effective in late 2010 or early 2011). The PSR Policy (Part II) governs the provision of intraday credit and sets out the general methods used by the Reserve Banks to control their intraday credit exposures. See the Board's December 19, 2008, press release and 73 Fed. Reg. 79109, December 24, 2008, for a full discussion of the policy changes and their relevant effective dates.
- Country Risk and Transfer Risk. Sections 7040.1 through 7040.4 have been revised to include the guidance issued in SR letter 08-12, "Revisions to the Guide to the Interagency Country Exposure Review Committee (ICERC) Process," and its attachments. The guidance discusses the November 2008 changes to the ICERC country rating process. The primary change is that the federal banking agencies will assign an ICERC rating only to those countries in default. Default occurs when a country is not complying with its external debt-service obligations or is unable to service the existing loan according to its terms, as evidenced by the failure to pay principal and interest fully and on time, arrearages, forced restructuring, or rollovers. The Federal Reserve and other federal banking agencies eliminated the rating categories of Other Transfer Risk Problems, Weak, Moderately Strong, and Strong.
- Required Absences from Sensitive Positions. The new sections 5017.1, 5017.2, and 5017.3, "Internal Controls--Procedures, Processes, and Systems (Required Absences from Sensitive Positions)," provide the examiner with guidance when evaluating an institution's internal controls. Section 5017.1 includes a brief discussion of internal control, its objectives, its components, and the concept of internal control structure. The section discusses a basic tenet of internal control--a bank needs to ensure that its employees in sensitive positions are absent from their duties for a minimum of two consecutive weeks per year.
- Application of the Market-Risk Rule. Section 3020.1, "Assessment of Capital Adequacy," has been revised to include a reference to the guidance issued in SR letter 09-1, "Application of the Market-Risk Rule in Bank Holding Companies and State Member Banks." This guidance assists banks in assessing market risk, provides clarification on certain aspects of the rule, and ensures that banks apply the market-risk rule appropriately and consistently (see 12 CFR 208, appendix E). Banking organizations are to reassess and adjust their market-risk management programs periodically to account for changing firm strategies, market developments, organizational incentive structures, and evolving risk management techniques.
A more detailed summary of changes is included with the update package. The public may obtain the manual and the updates (including pricing information) from Publications Fulfillment, Mail Stop N-127, Board of Governors of the Federal Reserve System, 20th and C Streets, NW, Washington, D.C., 20551; telephone (202) 452-3244; or send a facsimile to (202) 728-5886.