The management of banks' off-balance-sheet exposures: a supervisory perspective

March 1986

The main conclusion of this paper is that the individual types of risk associated with most off-balance-sheet business are in principle no different from those associated with on-balance-sheet business. It therefore suggests that off-balance-sheet risks cannot and should not be analysed separately from the risks arising from on-balance-sheet business, but should be regarded as an integral part of banks' overall risk profiles. Approaching off-balance-sheet activities in this way has the additional merit of recognising their value when they serve to hedge risks present within the balance sheet. Supervisors consider it particularly important that banks adopt a coordinated approach to risk management and pay special attention to the possible correlation of different types of risk, both within the individual bank and the banking group as a whole.