Template:Crmtechniques

From The Jolly Contrarian
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CRM techniques under the Basel Standardised Approach to Credit Risk framework are broken down as follows:

An Important point

Note the difference between techniques which mitigate a credit risk that you nonetheless have — as above — and those which negate the credit exposure in the first place. So, par example, a title-transfer collateral arrangement whereby a bank transfers outright collateral to a counterparty may, as part of a valid netting agreement, mitigate that collateral but will leave you with an exposure to any excess collateral or haircut; however transfer under a pledged collateral arrangement — at least to the exent that you don't surrender legal title to the collateral at all — will leave you with no counterparty credit exposure at all to the haircut or excess, seeing as it is yours, and if the counterparty goes bust, you will be entitled to have it returned in full.

  1. This is what it says, and I suppose it is true, even though “hedging” is a curious way of describing it