Counterparty credit risk: Difference between revisions

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''Also known as {{tag|CCR}})''  
{{a|crr|}}{{d|Counterparty credit risk|/ˈkaʊntəˈpɑːti/ /ˈkrɛdɪt/ /rɪsk/|n|}}''(Also [[CCR]])'' No, not Creedence Clearwater Revival. But, in the minds of a credit officer, something almost as hallowed: the risk that the counterparty to a [[transaction]] could default before finally settling all payments it owes under the transaction.


No, not Creedence Clearwater Revival. But, in the minds of a credit officer, something almost as hallowed, on which much of the ''Treatment of Counterparty Credit Risk and Cross-Product Netting'' under {{tag|Basel II}} is predicated. A good place to start is Annex 4.
An important component of Basel regulation since at least Basel II, by late stage Basel III and Basel IV, it had become “SA-CCR”, the standardised approach to calculating counterparty
credit risk, replacing previously sanctioned methods.


{{Box|[[Counterparty Credit Risk]] ({{tag|CCR}}) is the risk that the counterparty to a [[transaction]] could default before the final settlement of the transaction's cash flows. An economic loss would occur if the transactions or portfolio of transactions with the counterparty has a positive economic value at the time of default. Unlike a firm’s
Interesting thing I didn’t know until today was that only ⅓ of all losses suffered in the global financial crisis came from actual counterparty defaults. Two-thirds came from [[credit value adjustment]]s arising from the credit deterioration, but not outright failure, of derivative counterparties.
exposure to credit risk through a loan, where the exposure to credit risk is unilateral and only the lending bank faces the risk of loss, CCR creates a bilateral risk of loss: the market value of the transaction can be positive or negative to either counterparty to the transaction. The market value is uncertain and can vary over time with the
movement of underlying market factors.}}


 
{{sa}}
{{bipruanatomy}}
*[[Credit value adjustment]]s

Latest revision as of 17:37, 15 January 2024

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Counterparty credit risk
/ˈkaʊntəˈpɑːti/ /ˈkrɛdɪt/ /rɪsk/ (n.)
(Also CCR) No, not Creedence Clearwater Revival. But, in the minds of a credit officer, something almost as hallowed: the risk that the counterparty to a transaction could default before finally settling all payments it owes under the transaction.

An important component of Basel regulation since at least Basel II, by late stage Basel III and Basel IV, it had become “SA-CCR”, the standardised approach to calculating counterparty credit risk, replacing previously sanctioned methods.

Interesting thing I didn’t know until today was that only ⅓ of all losses suffered in the global financial crisis came from actual counterparty defaults. Two-thirds came from credit value adjustments arising from the credit deterioration, but not outright failure, of derivative counterparties.

See also

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