Exposure exchange agreements among multilateral development banks for sovereign exposures: An innovative risk management tool

Riadh Belhaj, Merli Baroudi, Norbert Fiess, Jonas Campino De Olivera, Frank Sperling and Tim Turner
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Frank Sperling: Unit Chief, The Inter-American Development Bank, USA

Journal of Risk Management in Financial Institutions, 2017, vol. 10, issue 1, 78-88

Abstract: Until now, multilateral development banks (MDBs) have had only limited options to manage concentration risk: they either had to reduce lending to countries with high concentration, or allocate additional capital to cover the related concentration risk, the latter potentially requiring capital increases. The ability to exchange exposures between MDBs via exposure exchange agreements (EEA) represents an important innovation in risk management for the entire MDB community as it substantially improves the collective financial capacity and development effectiveness of the MDB community. After two years of development, the framework for exchanging exposure between MDBs was approved by the Boards of the African Development Bank (AfDB), the Inter-American Development Bank (IADB) and International Bank for Reconstruction and Development (IBRD) in November 2015 and the first three MDB EEA transactions were signed between these institutions on 15th December, 2015. This paper provides the financial rationale behind exchanging exposure between MDBs and outlines key elements of the framework.

Keywords: concentration risk; credit risk; exposure exchange agreement; financial innovation; multilateral development institutions; risk management (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:aza:rmfi00:y:2017:v:10:i:1:p:78-88

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