Increased financial globalization, the development of new financial instruments, and changing macroeconomic conditions have led to a renewed examination of liquidity risk. This Economic Letter highlights key elements of liquidity risk measurement and management.

This Economic Letter reviews the Basel Capital Accord's stated principles on interest rate risk. In brief, the principles strongly support the idea that banks' internal risk assessments should, whenever possible, form the basis for supervisory oversight of their interest rate risk profiles. The...

The U.S. bank supervisory agencies recently issued for public comment revised guidance regarding the implementation of the proposed Basel II-related, risk-based capital requirements. Among the revisions is an important update to guidance regarding operational risk management. Operational risk...

Over the last decade, a variety of financial tools have been developed for transferring credit risk between financial institutions. Credit risk is defined as the risk that the value of a corporate loan (or debt obligation more generally) will decline due to a change in the borrower's ability to...

Many supervisory agencies have begun using stress-testing techniques to assess the capital adequacy of individual firms and even national financial systems. In this Economic Letter, I define stress testing, describe its possible applications, highlight certain techniques developed to conduct...

We find that covariance matrix forecasts for an international interest rate portfolio generated by a model that incorporates interest-rate level volatility effects perform best with respect to statistical loss functions. However, within a value-at-risk (VaR) framework, the relative performance...

Financial institutions are increasingly using economic capital models to help determine the amount of capital they need to absorb unexpected losses. These models typically aggregate capital based on business-level analysis. However, important challenges surround this aggregation as well as other...