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Banks Must Do More on Counterparty Risks, Fed’s Barr Says

(Bloomberg) — Wall Street lenders must do more to spot risks from firms they do business with as the Federal Reserve steps up oversight of counterparty risks, according to the central bank’s vice chair for supervision.

Michael Barr said Tuesday that banks should bolster how they assess the credit risk of trading partners and their leverage. He cited the blowup of Archegos Capital Management, which led to more than $10 billion of reported losses across several lenders, as an example of what can happen if lenders don’t fully understand their exposures.

“Banks need reliable, comprehensive, granular, and frequent information about their counterparties to make prudent decisions,” Barr said in remarks for the New York Fed’s Conference on Counterparty Credit Risk Management. “Obtaining this information can be challenging because of client activity happening away from the bank.”

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