Posted: 28 February 2013 | Source: InteDelta
A commentary on the approaches to measuring counterparty risk and why all institutions need not be leading edge.
With so much emphasis placed on changes that the major banks have to make in calculating their credit exposure and capital it is easy to forget that most of the world’s banks are not systemically important nor derive a huge amount of business from complex derivative products. Most financial institutions are not banks at all - asset managers, insurance companies and other institutions all need to have a methodology for measuring their credit exposure, but they may not need to adopt the same level of sophistication as the global banks. In this paper we explore the approaches that may be appropriate for smaller and less sophisticated institutions.