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Resources for bankers

Counterparty Credit Risk

Counterparty credit risk is the risk arising from the possibility that the counterparty may default on amounts owned on a derivative transaction. Derivatives are financial instruments that derive their value from the performance of assets, interest or currency exchange rates, or indexes. They may include structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, and forwards, either singly or in various combinations.

A bank’s loan portfolio is typically its largest asset and predominate source of revenue. Consequently, it is also one of the greatest sources of risk, making effective portfolio management a key factor in bank safety and soundness.

BC = Banking Circular

Covers derivative products and provides guidance on supervisory issues related to participation in the credit derivative market.

Risk Management of Financial Derivatives (BC 277, October 1993)
Covers financial institutions’ policies, procedures, and risk management systems for financial derivatives

Summarizes key lessons and fundamental control issues reaffirmed by experiences of financial institutions since mid-1997