Collateral
Management A domestic banking holding
company subject to this guidance
1 should
have effective processes for the management, identification, and valuation
of collateral received by the bank holding company or posted to external
parties and affiliates on a material entity basis. For example, these
bank holding companies should, with respect to this collateral, be
able to:
- As of the conclusion of any business day:
○
Identify
the legal entity and geographic jurisdiction where counterparty collateral
is held;
○
Document
all netting and re-hypothecation arrangements with affiliates and
external parties, by legal entity; and
○
Track
and manage collateral requirements associated with counterparty credit
risk exposures between affiliates, including foreign branches.
- At least on a quarterly basis:
○
Review
the material terms and provisions of International Swaps and Derivatives
Association Master Agreements and the Credit Support Annexes, such
as termination events, for triggers that may be breached as a result
of changes in market conditions;
○
Identify
legal and operational differences and potential challenges in managing
collateral within specific jurisdictions, agreement types, counterparty
types, collateral forms, or other distinguishing characteristics;
and
○
Forecast
changes in collateral requirements and cash and non-cash collateral
flows under a variety of stress scenarios.
Payment, Clearing, and Settlement
Activities (PCS) A domestic bank holding
company subject to this guidance should have a comprehensive process
to understand, on a material entity basis, obligations and exposures
associated with PCS activities, including contractual obligations
and commitments. For example, these bank holding companies should
be able to:
- Track the following items by material entity and
location/jurisdiction:
○
PCS
activities, with each activity mapped to the relevant material entities
and core business lines;
○
Customers
and counterparties for PCS activities, including values and volumes
of various transaction types, as well as used and unused capacity
for all lines of credit;
○
Exposures
to and volumes transacted with financial market utilities (FMUs),
Nostro agents, and custodians; and
○
Services
provided and service level agreements for other current agents and
service providers (internal and external).
- Assess the potential effects of adverse actions by
FMUs, Nostro agents, custodians, and other agents and service providers,
including suspension or termination of membership or services, on
the bank holding company and customers and counterparties;
- Develop contingency arrangements in the event of
such adverse actions; and
- Quantify the liquidity needs and operational capacity
required to meet all PCS obligations, including any change in demand
for and sources of liquidity needed to meet such obligations.
Liquidity and Funding A domestic bank holding company subject
to this guidance should have a comprehensive understanding of funding
sources, uses and risks at material entities and critical operations,
including how funding sources may be affected under stress. For example,
these bank holding companies should:
- Evaluate the funding requirements necessary to perform
critical operations, including shared and outsourced services and
access to FMUs;
- Monitor liquidity reserves and relevant custodial
arrangements by jurisdiction and material entity;
- Routinely test funding and liquidity outflows and
inflows at the legal entity level under a range of adverse stress
scenarios, taking into account the effect on intra-day, overnight,
and term funding flows between affiliates and across jurisdictions;
- Assess existing and potential restrictions on the
transfer of liquidity between material entities; and
- Develop contingency strategies to maintain funding
for material entities and critical operations in the event of a disruption
in the bank holding company’s current funding model.
Management Information Systems
(MIS) A domestic bank holding company
subject to this guidance should be able to produce the following types
of information by material entity on a timely basis:
- Financial statements for each material entity (at
least monthly);
- External and inter-affiliate credit exposures, both
on- and off-balance sheet, by type of exposure, counterparty, maturity,
and gross payable and receivable;
- Gross and net risk positions with internal and external
counterparties;
- Guarantees, cross holdings, financial commitments,
and other transactions between material entities;
- Data to facilitate third-party valuation of assets
and businesses, including risk metrics;
- Key third party contracts, including the provider,
provider’s location, service(s) provided, legal entities that are
a party to or a beneficiary of the contract, and key contractual rights
(for example, termination and change in control clauses);
- Legal agreement information, including parties to
the agreement and key terms and interdependencies (for example, change
in control, collateralization, governing law, termination events,
guarantees, and cross-default provisions);
- Service level agreements between affiliates, including
the service(s) provided, the legal entity providing the service, legal
entities receiving the service, and any termination/transferability
provisions;
- Licenses and memberships to all exchanges and value
transfer networks, including FMUs;
- Key management and support personnel, including dual
hatted employees, and any associated retention agreements;
- Agreements and other legal documents related to property,
including facilities, technology systems, software, and intellectual
property rights. The information should include ownership, physical
location, where the property is managed and names of legal entities
and lines of business that the property supports; and
- Updated legal records for domestic and foreign entities,
including entity type and purpose (for example, holding company, bank,
broker dealer, and service entity), jurisdiction(s), ownership, and
regulator(s).
Shared and Outsourced Services A domestic bank holding company subject
to this guidance should have robust arrangements in place for the
continued provision of shared or outsourced services needed to maintain
critical operations. For example, these bank holding companies should:
- Evaluate internal and external dependencies and develop
documented strategies and contingency arrangements for the continuity
or replacement of the shared and outsourced services that are necessary
to maintain critical operations. Examples may include personnel, facilities,
systems, data warehouses, and intellectual property; and
- Maintain current cost estimates for implementing
such strategies and contingency arrangements.
Issued by the Board Jan. 24, 2014 (SR-14-1).
