How to implement counterparty credit risk requirements under Basel III: The challenges

Diana Ouamar

Journal of Risk Management in Financial Institutions, 2013, vol. 6, issue 3, 327-336

Abstract: To manage counterparty credit risk (CCR), it is fundamental to have in place models that efficiently measure the firm future CCR exposures as a function of the relevant underlying market factors. Basel II has revealed numerous loopholes in accurately managing CCR during the financial crisis. As a result, Basel III addresses several shortcomings and ambiguities present in the previous capital accord such as enhancing capital for counterparty default risks inherent in structured financing transactions and over the counter (OTC) contracts and/or securitisation transactions. Banking regulation is no longer a secondary concern but is now a primary trigger in determining strategic direction and long term positioning of the bank. This time, choosing ‘the minimum compliance’ option for implementing the new CCR requirements, will not be enough to sustain an optimal risk-management structure nor a long-term business growth. Only the implementation of a sound riskmanagement structure can enable any banks to get to that highly developed stage.

Keywords: counterparty credit risk (CCR); Basel III; risk management; impact assessment; implementation; best practices (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2013
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