OVERVIEW

On April 30, 2010, the Board of Governors of the Federal Reserve System (the “Board”), the Federal Deposit Insurance Corporation (the “FDIC”), the Office of the Comptroller of the Currency (the “OCC”), and the Office of Thrift Supervision (the “OTS”) (the “Agencies”) issued guidance on Correspondent Concentration Risks (“Guidance”) in order to promote prudent risk management practices among financial institutions. The Guidance outlines the Agencies’ expectations for (i) identifying, (ii) monitoring, and (iii) managing correspondent risks between financial institutions and (iv) performing appropriate due diligence on all credit exposures to and funding transactions with other financial institutions.1

The Agencies agree that some concentrations meet certain business needs or purposes. However, as stated in the Guidance, correspondent concentrations represent a lack of diversification, which adds a level of risk that should be considered by management when it formulates and implements strategic plans and internal risk limits. The Agencies emphasize that the Guidance is not intended to replace or amend Regulation F (12 C.F.R. Part 206), in which the Board addresses limitations on interbank liabilities. Rather, the Guidance clarifies that financial institutions should consider taking actions beyond the minimum requirements of Regulation F, maintain sound and effective risk management policies and procedures, and address credit exposures accordingly.