A significant proportion of internationally active banks and securities firms reviewed now provide a comprehensive overview of the business objectives of their trading and derivatives activities, the associated risks, and the methods used to manage these risks. For example, 71 institutions discussed objectives and strategies for trading activities and 66 for non-trading activities, as compared with 38 and 37, respectively, in 1993. The number of institutions discussing how credit and market risk arises increased from 34 and 35, respectively, in 1993 to 66 and 68 in 1995. While there was a significant increase in the number of institutions discussing operating and legal risks, more than half of the institutions included in the survey still do not discuss how these risks arise and how they are managed. This is particularly noteworthy given the prominent losses over the past two years resulting from operating or legal problems.

This year's survey placed greater emphasis on disclosures of valuation and accounting policies for trading and derivatives activities, an area where the November 1995 report recommended various improvements. In 1995 annual reports, 58 institutions discussed the methods and assumptions used in valuing financial instruments, compared with 45 in 1994 and 26 in 1993. Twenty-six institutions provided a discussion of their market valuation adjustments or reserves, and 45 discussed their valuation methodology when no quoted prices are available.

The number of institutions providing a general discussion of their accounting policies for derivative instruments increased from 63 in 1993 to 72 in 1995. A significant number of institutions provided further detail on their accounting policies, for example, by distinguishing between accounting methods for different types of derivatives instruments (60) or by discussing hedge accounting criteria (48). Only 13 institutions discussed the accounting treatment for credit losses related to derivative instruments.

In sum, there have been notable enhancements in the qualitative discussions provided by the banks and securities firms included in the survey. At the same time, there remain differences across institutions, both nationally and internationally, regarding the level of detail provided for such disclosures.