of the banking organization and the inherent risks of its activities. as with other types of risk, large multinational organizations will require more elaborate and formal compliance - risk management systems to address their broader and typically more complex range of financial activities and to provide senior managers and directors with the information they need to monitor and direct activities. therefore, our supervisory expectations regarding an organization's risk - management program, and more specifically the scope of an examination, will vary according to the organization's size and complexity. assessing the adequacy of compliance - risk management programs the federal reserve's supervisory approach in the area of compliance - risk management is consistent with our long - standing focus on the adequacy of banking organizations'overall management of risk. to this end, federal reserve examiners assess the quality of a banking organization's systems for identifying, measuring, and containing its risks. while historically there has been a greater emphasis on risk management in the areas of credit, market, operational, and liquidity risk, because of the growing complexity of banking operations and their regulatory frameworks the federal reserve is taking a greater interest in banking organizations'ability to manage their compliance risk. scoping the examination generally, a federal reserve examination team begins by defining the scope of the examination ; this is when examiners determine the areas of focus and level of scrutiny. the scope of the examination will vary depending on the nature and circumstances of the banking organization. for example, as part of the scoping exercise, examiners will consider previous examination and audit findings to determine whether the organization has a satisfactory history of compliance or whether there have been previous concerns about its compliance - risk management program. the examination team will also review the organization's compliance - risk assessment. depending on its quality, the risk assessment can also help direct the resources of the examination team. altogether, the information gleaned from examination and audit findings and a current risk assessment will directly affect the scope of the examination, including the level and area of transaction testing required to assess the adequacy of the compliance - risk management program. at institutions with a less satisfactory record, a more extensive review will be necessary. federal reserve examinations for compliance - risk management are not designed to be gotcha games in which examiners look for one - time breaches of specific regulations or laws. rather, these examinations are designed to assess the adequacy of the structure and processes the institution uses for managing compliance risk. examiners are expected to look for

us monetary policy and australian financial conditions | speeches | rba 2. the banks must meet their periodic coupon ( interest ) payments in us dollars, which are tied to us interest rates ( either immediately if the security has a floating interest rate, or when the security matures and is re - financed ). so a rise in us interest rates ( or an appreciation of the us dollar ) would increase interest costs for australian banks that extend loans to australian borrowers. however, it is standard practice for australian banks to eliminate, or at least substantially reduce, these risks. they can do this using a derivative instrument known as a cross - currency basis swap. such instruments are – when used appropriately – a relatively cost effective way of transferring risks to parties with the appetite and capacity to bear them. simply put, cross - currency basis swaps allow parties to ‘ swap ’ interest rate streams in one currency for another. they consist of three components ( figure 1 ) : 1. first, the australian bank raises us dollars in the us wholesale markets. next, the australian bank and its swap counterparty exchange principal amounts at current spot exchange rates ; that is, the australian bank ‘ swaps ’ the us dollars it has just borrowed and receives australian dollars in return. it can then extend australian dollar loans to australian borrowers ; 2. over the life of the swap, the australian bank and its swap counterparty exchange a stream of interest payments in one currency for a stream of interest receipts in the other. in this case, the australian bank pays an australian dollar interest rate to the swap counterparty and receives a us dollar interest rate in return. the australian bank can use the interest payments from australian borrowers to meet the interest payments to the swap counterparty, and it can pass the interest received from the swap counterparty onto its bondholders ; 3. at maturity of the swap, the australian bank and its swap counterparty re - exchange principal amounts at the original exchange rate. the australian bank can then repay its bond holders. in effect, the australian bank has converted its us dollar, us interest rate obligations into australian dollar, australian interest rate obligations. https : / / www. rba. gov. au / speeches / 2018 / sp - ag - 2018 - 12 - 10. html 4 / 10 12 / 10 / 2018 us monetary policy and australian financial conditions | speeches | rba figure 1 an analogy related to housing can help to further the intuition here. imagine a bloomberg employee who owns an apartment