For us managing counterparty risks means: Controlling risks consciously.

Management of counterparty risks: Taking the right risks.

Management of credit risks lies at the core of the banking business, and even with derivative transactions there is a danger of a counterparty failing to meet its contractual obligations.  This does not mean that no derivative transactions should be concluded to avoid risks.  Rather, what is required is conscious control of counterparty risks.  In Risk and Quant Consulting such control includes the avoidance and limitation of undesired risks, diversification and hedging of existing risks, and setting the right incentives for your distribution of derivatives.

In handling counterparty risks, regulatory requirements arising from, amongst others, Basel III must also be observed. Besides calculating risk weightings based on creditworthiness via the standard or the IRB approach, a further challenge arises with derivative transactions in the form of the computation of the exposures.  For this, under the framework of CRR II, a new standard approach has been introduced for counterparty risks (SA-CCR).  SA-CCR depicts the Potential Future Exposure (PFE) much more realistically than the previous non-model based approaches; however, it involves more complexity in the computation and greater data requirements.

Our advisors support you in projects such as

  • Optimization of the control of your counterparty risks
  • Analysis of effects and subsequent implementation of upcoming regulatory changes such as SA-CCR
  • Selection and implementation of systems to quantify counterparty risks

LPA Risk & Quant Consulting helps you to only enter risks that you want to take on – of course in compliance with all regulatory requirements.