The federal banking agencies issued joint guidance on April 30 addressing the agencies’ expectations for financial institutions relating to identifying, monitoring, and managing risks associated with funding and credit concentrations arising from correspondent relationships. A correspondent relationship occurs when a financial organization provides another financial organization with services related to deposits, lending, or other activities.

Nutter Notes: The guidance highlights the need for institutions to identify, monitor, and manage correspondent concentration risk on a stand-alone and organization-wide basis. The guidance also reinforces the supervisory view that financial institutions should perform appropriate due diligence on all credit exposures to, and funding transactions with, other financial institutions as part of their risk management policies and procedures.