More fundamentally, the proper management of counterparty credit risk – which is the risk of loss from a counterparty's failure to perform its financial obligations – is a prerequisite for protecting the entire system from contagion when any one institution fails.
Consistent with the recommendations of recent reports, we are looking at how firms are addressing weaknesses in counterparty credit risk management practices highlighted by recent events, including the measurement and aggregation of exposures stemming from a wide range of transactions with both unregulated and regulated entities.