FRB Emphasizes Need For Risk Management In Loans To Private Funds

In a supervision and regulation letter to institutions that have large derivatives portfolios and relationships with investment funds, the Federal Reserve Board ("FRB") reiterated previously issued expectations as to large banks' counterparty credit risk management and margin practices.

After an investigation into the cause of the Archegos Capital Management default, which resulted in over $10 billion in losses to banking organizations, the FRB reminded banking organizations of their obligations to conduct and maintain due diligence and recommended that firms obtain information regarding the size, leverage, and largest or most concentrated positions of a fund, as well as its access to other lines of credit.