The FDIC's Division of Supervision (DOS) has issued to
its examiners the attached preliminary guidance for the
supervisory review of credit derivatives. The guidance provides
an overview of credit derivatives and includes a framework
for analyzing the risks incurred by insured financial institutions
that use these off-balance sheet instruments.
Credit derivatives are financial instruments used to assume
or lay off credit risk, sometimes to only a limited extent.
Depository institutions are increasingly employing these
off-balance sheet instruments to either purchase credit
protection from or provide credit protection to counterparties.
This guidance stresses the need for examiners to ensure
that depository institutions that use credit derivatives
for such purposes as risk management, yield enhancement,
reduction of credit concentrations, or diversification of
overall risk have established sound risk management policies
For more information, please contact your regional DOS