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Federal Reserve Board reiterates its supervisory expectations for large banks’ risk management with investment funds

December 10, 2021 / Source: FRB

The Federal Reserve Board on Friday reiterated its supervisory expectations for large banks' risk management with investment funds. The supervisory message follows a review by the Board of the default and failure of Archegos Capital Management, a concentrated and leveraged fund.

The message describes the Board's existing expectations for large banks' counterparty credit risk management and margin practices, as well as existing practices that do not meet supervisory expectations, and identifies ways to mitigate those practices. Regardless of the type of client, banks are expected to undertake proper due diligence with a client and take fully into account the risks that a relationship with a client may pose to the bank.

The failure of Archegos resulted in more than $10 billion in losses across several large banks, principally outside the United States. The Board, along with other U.S. and foreign regulators, initiated a review to assess the failure and the actions that led to it and may take further action.

For media inquiries, please email media@frb.gov or call 202-452-2955.

SR Letter 21-19: The Federal Reserve reminds firms of safe and sound practices for counterparty credit risk management in light of the Archegos Capital Management default