As part of its effort to introduce the new capital adequacy framework, known as Basel II, the Office of the Superintendent of Financial Institutions has published a draft guideline for dealing with interest rate risk.

OSFI notes that the Basel Committee on Banking Supervision has issued a document outlining a number of fundamental principles on the management of interest rate risk (Principles for the Management and Supervision of Interest Rate Risk). OSFI fully supports the principles outlined in the Basel Committee’s document, it says.

While the Basel Committee has developed minimum standards, it is OSFI’s view that certain critical areas require special emphasis. In future examinations covering interest rate risk management, OSFI will place additional emphasis on these areas when assessing practices at banks or federally regulated trust and loan companies, it notes.

Accordingly, OSFI is issuing a guideline to provide greater transparency regarding its expectations in areas such as board and senior management oversight, disclosure and transfer pricing.

Comments on the draft are due by January 7, 2005.