These observations provide some reassurance that the ever-expanding market for foreign exchange need not imply that banks are increasingly vulnerable to foreign exchange risk. However, this evidence does not indicate that we should be complacent regarding banks' future exposure. For one thing, these assessments of overall foreign exchange exposure say little about the possibilities for abuses by individual rogue traders. Secondly, the assessments reflect the past behavior of banks. Banks always will have the capacity to take on additional risk in the future.
Past discretion is no guarantee of future prudence.
This is as true for foreign exchange risk as it is for interest rate risk and credit risk. Chamberlain, Sandra, John Howe, and Helen Popper. The Exchange Rate Exposure of U.S. and Japanese Banking Institutions. Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco, or of the Board of Governors of the Federal Reserve System. Editorial comments may be addressed to the editor or to the author.