Counterparty credit risk
Also known as CCR)
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 Basel II is predicated. A good place to start is Annex 4.
- Counterparty Credit Risk (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
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.
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Regulatory Capital Anatomy™
The JC’s untutored thoughts on how bank capital works. {{{2}}}
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