Our File: P2815-4-1, P2815-7

September 13, 2000

TO: Banks; Federally Regulated Trust and Loan Companies

Today the Basel Committee on Banking Supervision released two papers in respect of credit risk – Best Practices for Credit Risk Disclosure and Principles for the Management of Credit Risk. Both papers were originally published for consultation in July 1999. Comments received on the consultative papers provided the Basel Committee with helpful suggestions for improvements to the final version of the papers.

Best Practices for Credit Risk Disclosure provides guidance on best practices for public disclosure of credit risk in banking institutions. The issuance of this paper is a component of the Basel Committee’s ongoing efforts to promote adequate transparency and effective market discipline. The objective is to encourage banks to provide market participants and the public with the information they need to make meaningful assessments of a bank’s credit risk management. Questions on the paper should be directed to Nancy Sinclair, Capital Division at (613) 990-7286.

Principles for the Management of Credit Risk addresses sound practices in the following areas: (i) establishing an appropriate credit risk environment; (ii) operating under a sound credit-granting process; (iii) maintaining an appropriate credit administration, measurement and monitoring process; and (iv) ensuring adequate controls over credit risk. Although specific credit risk management practices may differ among banks depending upon the nature and complexity of their credit activities, a comprehensive credit risk management program will address these four areas. Questions on the paper should be directed to Aina Liepins, Capital Division at (613) 998-5606.

OSFI has taken an active role in the Basel Committee and endorses the principles put forward in these papers. The papers are available in English on our web site at http://www.osfi-bsif.gc.ca and on the BIS web site at http://www.bis.org.

Sincerely,

Robert Hanna
Senior Director, Capital Division