Market Risk Management

Market risk encompasses the risk of financial loss resulting from movements in market prices. Market risk is rated based upon, but not limited to, an assessment of the following evaluation factors:

  • The sensitivity of the financial institution's earnings or the economic value of its capital to adverse changes in interest rates, foreign exchanges rates, commodity prices, or equity prices.
  • The ability of management to identify, measure, monitor, and control exposure to market risk given the institution's size, complexity, and risk profile.
  • The nature and complexity of interest rate risk exposure arising from nontrading positions.
  • Where appropriate, the nature and complexity of market risk exposure arising from trading and foreign operations.

This topic also provides specific guidance on interest-rate risk, which is the exposure of a bank's current and future earnings and capital arising from adverse movements in interest rates, and the market risk capital rule, which establishes regulatory capital requirements for bank holding companies and state member banks with significant exposure to certain market risks.

Policy Letters

Market Risk

Federal Financial Institutions Examination Council Issues Joint Statement on Managing the LIBOR Transition

Interagency Frequently Asked Questions (FAQs) on the Regulatory Capital Rule

Guidance on Model Risk Management

Application of the Market Risk Rule in Bank Holding Companies and State Member Banks

Interagency Policy on Banks/Thrifts Providing Financial Support to Funds Advised by the Banking Organization

Risk Management and Valuation of Mortgage Servicing Assets Arising from Mortgage Banking Activities

Risk Management and Valuation of Retained Interests Arising from Securitization Activities

Interagency Guidance on Common Questions About the Application of the Revised CAMELS Rating System

Uniform Financial Institutions Rating System

Rating the Adequacy of Risk Management Processes and Internal Controls at State Member Banks and Bank Holding Companies

Interest Rate Risk

Commodity Futures Trading Commission (CFTC) Swap Clearing Rules

Questions and Answers on Interagency Advisory on Interest Rate Risk Management

Interagency Advisory on Interest Rate Risk

Joint Agency Advisory on Rate-Sensitive Deposits

Joint Policy Statement on Interest Rate Risk

Private Equity and Merchant Banking

Supervisory Guidance on Equity Investment and Merchant Banking Activities

Trading Activities

Regulatory Capital Treatment of Certain Centrally-cleared Derivative Contracts under the Board's Capital Rule

Procedures for a Banking Entity to Request an Extension of the One-Year Seeding Period for a Covered Fund

Initial Examinations for Compliance with Minimum Variation Margin Requirements for Non-Cleared Swaps and Non-Cleared Security Based Swaps

Commodity Futures Trading Commission (CFTC) Swap Clearing Rules

Interagency Counterparty Credit Risk Management Guidance

Framework for Financial Holding Company Supervision

Sound Credit Risk Management and the Use of Internal Credit Risk Ratings at Large Banking Organizations

FFIEC Policy Statement on Investment Securities and End-User Derivatives Activities

Section 20 Subsidiaries - Additional Clarification of Revenue Test Treatment of Interest Income

Inspection Procedures for "Section 20 Subsidiaries"

Additional Resources

Manual References

  • Bank Holding Company Supervision Manual
    • Section 2126.0, "Model Risk Management"
    • Section 2126.1, "Investment Securities and End-User Derivatives Activities"
    • Section 2126.3, "Risk-Focused Supervision (Counterparty Credit Risk Management Systems)"
    • Section 2127.0, "Interest-Rate Risk (Risk Management and Internal Controls)"
  • Commercial Bank Examination Manual
    • Section 1200.1, "Uniform Financial Institutions Rating System and the Federal Reserve's Risk-Management Rating"
    • Section 2500.1, "Investment Securities and End-User Activities"
    • Section 3300.1, "Interest Rate Risk Management"
    • Section 4027.1, "Model Risk Management"
  • Trading and Capital-Markets Activities Manual
    • Section 2010.1, "Market Risk"
    • Section 3010.1, "Interest Rate Risk Management"
    • Section 3040.1, "Equity Investment and Merchant Banking Activities"
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Last Update: December 15, 2023