Results from joint Credit/FitchSolutions survey shows most buy-side firms do not hedge counterparty risk.
Those surveyed cited hedging as too expensive.
The presentation suggest using CDS as early market systems of increasing risk from counterparties.
Concerned About Vendor Management 10 30 12wstippich
Technology companies increasingly share their critical information assets and outsource business and IT processes to third-party service providers. In this presentation, Grant Thornton LLP and TechAmerica walk you through how technology companies can manage this third-party risk.
Concerned About Vendor Management 10 30 12wstippich
Technology companies increasingly share their critical information assets and outsource business and IT processes to third-party service providers. In this presentation, Grant Thornton LLP and TechAmerica walk you through how technology companies can manage this third-party risk.
Given the current regulatory environment and the resulting changes going on in the industry today, the chief risk officer has become the most important person in the financial institution.
WolfPAC Solutions Group Director Michael Cohn interviewed chief risk officers at financial institutions across the country to find out how they became a CRO, what skills and experience they bring to the role, and what is expected of them now.
Igor Zax, managing director of Tenzor Ltd, published a new article, Buyer Confirmed Receivables - Wider Market Implications , in the World Supply Chain Finance Report 2016, a major publication by BCR/Factorscan. The article is focused on use of buyer confirmed receivables across a variety of financing products, such as credit insurance, secularization, alternative fiance, distribution finance, as well as it's technological and strategic implications.
Assessing a bank’s culture is not an easy task, but there clearly is an increased emphasis on culture that is part of the regulators' broader focus on “heightened standards.” Learn what it takes to have a strong credit culture. Read about these 10 credit culture factors to assess your institution's credit culture.
It is important to consider the emerging risks surrounding commercial lending and commercial real estate lending. What stage are we in of this current economic cycle? The answer is uncertain, but it is important to consider the emerging risks surrounding commercial lending and CRE lending.
This presentation provides complete study ofcredit risk management,how it was performed in yester years ,how it is taken care nowadays and what is the road ahead in future
Heading into 2020, The Risk Management Association is focusing on eight risks. Learn about the top risks the financial services industry faces and how you can address them.
Quantifi Whitepaper: The Evolution Of Counterparty Credit Riskamoini
Written by David Kelly (Head of Credit and Counterparty Risk Product Development, Quantifi) and Jon Gregory (former Head of Counterparty Risk at Barclays Capital)
Instilling the Right Credit Risk CultureLibby Bierman
As the Comptroller's Handbook states, "a bank’s first defense against excessive credit risk is the initial credit-granting process, sound underwriting standards, an efficient, balanced approval process, and a competent lending staff." The start of a new year is the perfect time to review and improve your credit risk culture.
Garrett Morris, director of consulting at Sageworks, discussed the key elements of a strong credit risk culture, including:
-Three Ps of credit analysis
-Five Cs of credit
-Five Cs of data collection
-12 questions to ask at your institution
MODULE 3:
Credit Risks Credit Risk Management models - Introduction, Motivation, Funtionality of good credit. Risk Management models- Review of Markowitz’s Portfolio selection theory –Credit Risk Pricing Model – Capital and Rgulation. Risk management of Credit Derivatives.
Given the current regulatory environment and the resulting changes going on in the industry today, the chief risk officer has become the most important person in the financial institution.
WolfPAC Solutions Group Director Michael Cohn interviewed chief risk officers at financial institutions across the country to find out how they became a CRO, what skills and experience they bring to the role, and what is expected of them now.
Igor Zax, managing director of Tenzor Ltd, published a new article, Buyer Confirmed Receivables - Wider Market Implications , in the World Supply Chain Finance Report 2016, a major publication by BCR/Factorscan. The article is focused on use of buyer confirmed receivables across a variety of financing products, such as credit insurance, secularization, alternative fiance, distribution finance, as well as it's technological and strategic implications.
Assessing a bank’s culture is not an easy task, but there clearly is an increased emphasis on culture that is part of the regulators' broader focus on “heightened standards.” Learn what it takes to have a strong credit culture. Read about these 10 credit culture factors to assess your institution's credit culture.
It is important to consider the emerging risks surrounding commercial lending and commercial real estate lending. What stage are we in of this current economic cycle? The answer is uncertain, but it is important to consider the emerging risks surrounding commercial lending and CRE lending.
This presentation provides complete study ofcredit risk management,how it was performed in yester years ,how it is taken care nowadays and what is the road ahead in future
Heading into 2020, The Risk Management Association is focusing on eight risks. Learn about the top risks the financial services industry faces and how you can address them.
Quantifi Whitepaper: The Evolution Of Counterparty Credit Riskamoini
Written by David Kelly (Head of Credit and Counterparty Risk Product Development, Quantifi) and Jon Gregory (former Head of Counterparty Risk at Barclays Capital)
Instilling the Right Credit Risk CultureLibby Bierman
As the Comptroller's Handbook states, "a bank’s first defense against excessive credit risk is the initial credit-granting process, sound underwriting standards, an efficient, balanced approval process, and a competent lending staff." The start of a new year is the perfect time to review and improve your credit risk culture.
Garrett Morris, director of consulting at Sageworks, discussed the key elements of a strong credit risk culture, including:
-Three Ps of credit analysis
-Five Cs of credit
-Five Cs of data collection
-12 questions to ask at your institution
MODULE 3:
Credit Risks Credit Risk Management models - Introduction, Motivation, Funtionality of good credit. Risk Management models- Review of Markowitz’s Portfolio selection theory –Credit Risk Pricing Model – Capital and Rgulation. Risk management of Credit Derivatives.
Before the financial crisis, the primary role of the bank underwriter was to make good decisions in deploying the bank’s resources to help loan applicants achieve their goals. Learn how this role in changing in the industry.
Effective Risk Management Strategies for Factoring Success.pptxM1NXT
Factoring, which involves the purchase of accounts receivable to provide businesses with quick access to working capital, is a powerful financial tool that can fuel growth and stability. However, it comes with its own set of risks and challenges.
Visit: https://m1nxt.blogspot.com/2023/12/effective-risk-management-strategies.html
Safeguard your lending program by learning about the 8 steps of credit risk management. Learn about nonfinancial risks, structuring the loan, and more.
The Rise and Risks of Lending to Non-Depository Financial InstitutionsColleen Beck-Domanico
This excerpt from the RMA Credit Risk Council's “2017 Industry Insights: Perspectives from the Front Line” talks about the risks of lending to non-depository financial institutions. Those credit risks can be substantial and can arise from various factors.
Potential misconduct fines are now one of banking’s biggest risks. But now that it can be a large part of operational risk—sometimes, in and of itself, ranking alongside credit and market risk—it’s time to start measuring it. Read this to find out how.
Taking the road to advanced approaches and heightened standards in risk manag...Grant Thornton LLP
Develop and execute a roadmap to meet rising regulatory and stakeholder expectations. Banks of all sizes are required to build sophisticated analytical risk management capabilities in compliance with Dodd-Frank and other legislation making a priority of optimizing the deployment of capital and infusing objectivity into its allocation.
Ensuring capital availability for entrepreneurs is consistently referred to by business owners as one of the key components of any successful banking relationship. If you lend to small businesses, you should know about the competitive landscape, including alternative lenders, and the 5 regulatory items you should monitor closely.
regulators role in enhancing Insurance company's rating, in addition this presentation talks about regulation in Jordan related to credit rating and how thet y effect ERM
credit rating process in India in details .pptxSudhamathi4
Credit Rating - Meaning
A credit rating is an independent assessment of a company's or government entity's creditworthiness in general terms or with respect to a particular debt or financial obligation
Credit Rating - Meaning
Credit rating is an opinion of the relative capacity of a borrowing entity to service its debt obligations within a specified time period and with particular reference to the debt instrument being rated.
History of Credit Rating
The credit rating system originated in the United states in the 70’s.
The high level of default, which occurred after the great depression, in the U.S. Capital markets, gave the impetus for the growth of credit rating.
The default of $82 million of commercial paper by Penn central in the year 1970, and the consequent panic of investors in commercial papers, resulted in massive defaults and liquidity crisis.
This prompted the capital issuers to get their commercial paper programs rated by independent credit rating agencies.
Importance of Credit Rating
Credit rating helps in the development of financial markets.
Credit rating enables investors to draw up the credit–risk profile and assess the adequacy or otherwise of the risk–premium offered by the market.
It saves the investors, time and enables them to take a quick decision.
Issuers have a wider access to capital along with better pricing.
It acts as a marketing tool for the instrument, enhances the company’s reputation and recognition.
Credit rating is a tool in the hands of financial intermediaries.
Credit rating helps the market regulators in promoting stability and efficiency in the securities market.
Credit Rating Process
Credit Rating Process
Features of Credit Rating
Specificity
The rating is specific to the debt instrument
It is intended as a grade and an analysis of the credit risk associated with that particular instrument.
Relativity
The rating is based on the relative capability and willingness of the issuer of the instrument to service debt obligations in accordance with the terms of the contract
Guidance
The rating aims at furnishing guidance to investors/ creditors in determining a credit risk associated with a debt instrument/ credit obligation.
Not a Recommendation
The rating does not provide any sort of recommendation to buy, hold or sell an instrument since it does not take into consideration, factors such as market prices, personal risk preferences and other considerations which may influence an investment decisions.
Broad Parameters
The rating process is based on certain broad parameters of information supplied by the issuer, and also collected from various other sources, including personal interactions with various entities.
No guarantee
The rating furnished by the agency does not provide any guarantee for the completeness or accuracy of the information on which rating is based.
Quantitative and Qualitative
While determining the rating grade, both quantitative as well as qualitative factors are employed.
Advantages
Advantages
Similar to Counterparty risk in a post Lehmans World -- January, 2010 (20)
From measuring production to measuring well-beingcatelong
What we measure affects what we do; and if our measurements are flawed, decisions may be distorted.
Choices between promoting GDP and protecting the environment may be false choices, once environmental degradation is appropriately included in our measurement of economic performance.
So too, we often draw inferences about what are
good policies by looking at what policies have promoted economic growth; but if our metrics of performance are flawed, so too may be the inferences that we draw.
US Senate Financial Reform Managers Amendment Summary, March 23, 2010catelong
The law firm Davis Polk created this Managers Amendment Summary to the March Dodd bill
It details changes in the wording of the proposed law from an earlier draft
Discussion of “Do Global Banks Spread Global Imbalances?”catelong
Discussion by Adam Ashcraft of the Federal Reserve Bank of New York of a paper presented at the Jacques Polak Research Conference -- Financial Frictions and Macroeconomic Adjustment, Washington DC, November 5—6, 2009
http://www.imf.org/external/np/res/seminars/2009/arc/index.htm
Interest rate risk management for banks under Basel II, presentation by Christine Brown, Department of Finance , The University of Melbourne, Shanghai, December 8-12, 2008
Capital Adequacy Standards and Bank Capitalcatelong
For banks these questions are answered:
*What is capital, what role does it play?
*How is capital measured?
*How much capital is desirable?
*How does capital influence bank behaviour?
Presented at the Enhancing Risk Management and Governance in the Region’s Banking System to Implement Basel, II and to Meet Contemporary Risks and Challenges Arising from the Global Banking System, APEC, 8th December - 12th December, 2008
A Fistful of Dollars: Lobbying and the Financial Crisis†catelong
Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions’ lobbying and their mortgage lending activities to answer this question. We find that, during 2000-07, lenders lobbying more intensively on specific issues related to mortgage lending (such as consumer protection laws) and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing loan portfolios. Ex-post, delinquency rates are higher in areas where lobbying lenders’ mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during key events of the crisis. The findings are robust to (i) falsification tests using information on lobbying activities on financial sector issues unrelated to mortgage lending, (ii) instrumental variables strategies, and (iii) a difference-in-difference approach based on state-level lending laws. These results suggest that lobbying may be linked to lenders expecting special treatments from policymakers, allowing them to engage in riskier lending behavior.
Deniz Igan, Prachi Mishra, and Thierry Tressel, Research Department, IMF‡
October 14, 2009
Do Global Banks Spread Global Imbalances? The Case of Asset-Backed Commercial...catelong
The global imbalance explanation of the financial crisis of 2007-09 argues that the
demand for riskless assets from countries with current account surpluses created fragility
in the US financial sector. We examine this explanation by analyzing the geography of
asset-backed commercial paper conduits set up by large commercial banks. We show
that both banks located in surplus countries and banks located in deficit countries
manufactured riskless assets of $1.2 trillion by selling short-term asset-backed
commercial paper to risk-averse investors, predominantly US money market funds, and
investing the proceeds primarily in long term US assets. As negative information about
US assets became apparent in August 2007, banks in both surplus and deficit countries
experienced difficulties rolling over asset-backed commercial paper and as a result
suffered significant losses. We conclude that it was global banking flows, and not just
global imbalances, that determined the geography of the financial crisis.
Viral Acharya, New York University, NBER, and CEPR and Philipp Schnabl, New York University
Macro Risk Premium and Intermediary Balance Sheet Quantitiescatelong
The macro risk premium measures the threshold return for real activity that
receives funding from savers. Financial intermediaries’ balance sheet conditions provide a window on the macro risk premium. The tightness of intermediaries’ balance sheet constraints determines their “risk appetite”. Risk appetite, in turn, determines the set of real projects that
receive funding, and hence determine the supply of credit. Monetary policy affects the risk appetite of intermediaries in two ways: via interest rate policy, and via quantity policies. We estimate time varying risk appetite of financial intermediaries for the U.S., Germany, the U.K., and Japan, and study the joint dynamics of risk appetite with macroeconomic aggregates and monetary policy instruments for the U.S. We argue that risk appetite is an important indicator for monetary conditions.
We measure how securitized assets, including mortgage-backed securities and other asset-backed securities, have shifted across financial institutions over this crisis and how the availability of financing has accommodated such shifts. Sectors dependent on repo financing – in particular, the hedge fund and broker-dealer sector – have reduced asset holdings, while the commercial banking sector, which has had access to more stable funding sources, has increased asset holdings. These findings are important to understand the role played by the government during the crisis as well as to understand the factors determining asset prices and liquidity during the crisis.
Zhiguo He (University of Chicago), In Gu Khang (Northwestern University) and Arvind Krishnamurthy (Northwestern University and NBER)
A short presentation about XBRL and credit ratings made at the Workshop on Improving Access to Financial Data on the Web, 5-6 October 2009, Co-organized by W3C and XBRL International, Inc, and hosted by FDIC, Arlington, Virginia USA
http://www.w3.org/2009/03/xbrl/program.html
Regulating Credit Default Swaps Preview For Presscatelong
Presentation of Mr. Gary Kopff for the PRMIA Conference on Reforming Markets for Credit Default Swaps & Collateralized Debt Obligations held in Washington, DC. June 10th, 2009.
Creating stability in the financial system -- Narrow Bankscatelong
Kevin James discusses the concept of "narrow banking".
This is banks which are constrained in the investing and lending activity.
It is an alternative to the giant too-big-too-fail banks which have nearly brought down the global financial system.
Moderninizing bank supervision and regulationcatelong
This is the testimony of Chris Whalen to the Senate Banking Committee on March 24, 2009 about bank and financial institution regulation and supervision.
A visualization of the efforts of the US Treasury to "save" the US financial system and the "too big to fail" firms like Citi, AIG and Bank of America.
This is a whitepaper prepared for Members of Congress concerning creating more transparency and accountability in the credit ratings process. It details events related to the Credit Crisis of 2007-2008.
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
2. Fitch Solutions Representatives
Presenter
● Jonathan DiGiambattista, Managing Director, Global Head of Risk and
Performance Analytics
The Panel
● Damiano Brigo, Managing Director, Quantitative Analytics
● Diana Allmendinger, Director, Research
● Catherine Downhill, Director, Integrated Data Services
● Jesse Waters, Director, Risk and Performance Platform
www.fitchsolutions.com January 28, 2010 1
3. Fitch Solutions is a leading provider of credit related analytics
and data services
● Products & Services include:
– Risk & Performance Platform for monitoring market-based credit risk signals and CDS
price movements
– Integrated Data Services providing CDS & ABCDS pricing, fundamental financials,
Fitch Ratings and market-based risk data
– FitchResearch.com credit research portal
● Market leading Quantitative Analytics team
● Commentaries and Publications:
– Weekly Risk and Performance Monitor providing overview of credit-related market
movements of sectors and regions
– Bi-weekly Liquidity commentaries highlighting liquidity in the CDS market
– Available on www.FitchSolutions.com
www.fitchsolutions.com January 28, 2010 2
4. Agenda
● Results of Counterparty Risk survey
● Meeting the challenges posed throughout the credit risk monitoring
workflow
● Benefits, shortcomings and options for using the CDS market for risk
signals
● A real-world example of counterparty risk management in a post-
Lehman world
● Question and Answer
www.fitchsolutions.com January 28, 2010 3
6. Counterparty Risk Management Survey 2009
● 85 Counterparty Risk Manager interviews during October 2009
● 11 broad questions were asked re: current practices and changes since
the Lehman default
Do you actively hedge counterparty risk? Are you set up to use central counterparties?
What other measures do you have in place to How many banks do you regularly deal with now?
manage counterparty risk? Pre-Lehman?
What measures do you have in place to monitor What factors influence your decisions not to trade
counterparty risk? with the best priced dealer?
How common are break clauses? Which dealers include their own credit risk as a
discount?
Are you in favor of segregated margin accounts? How have your counterparty risk practices
changed over the past year?
What is the impact of central counterparties on
your business?
● Results published in December issue of CREDIT
● Full results of the report and related articles available for download on
www.FitchSolutions.com
www.fitchsolutions.com January 28, 2010 5
7. Counterparty Risk Survey Results
● Results from joint Credit/FitchSolutions survey shows
most buy-side firms do not hedge counterparty risk
● Those surveyed cited hedging as too expensive
– ‘manage’ counterparty risk
– Limits and collateral
– Calculating exposure
– Monitoring for ‘early warning’
Source: credit/FitchSolutions Counterparty Risk Survey
● >75% of respondents are not set-up to trade on
CCPs
www.fitchsolutions.com January 28, 2010 6
8. Survey shows increased efforts on monitoring CP
credit quality
● 63% of respondents deal with fewer counterparties today than before
Lehman defaulted
– Respondents did not see benefit of counterparty diversification due to
nature of derivatives, correlation of derivatives and FI credit risks
– Fewer counterparties allows for better monitoring and enforcement of credit
quality standards
● Market participants were least satisfied with counterparty credit risk
monitoring and Market Liquidity
Source: credit/FitchSolutions Counterparty Risk Survey
www.fitchsolutions.com January 28, 2010 7
9. Survey respondents cited internal workflows pose
challenges for monitoring CP credit risk
66% of CRMs depend upon risk Counterparty selection: >60% of
assessments from a centralized CRMs deem credit risk the leading
Credit Risk function for an official reason to NOT trade with an
risk assessment; 33% do not use a ‘approved’ counterparty; 40% cited
formal credit risk assessment liquidity
5-10 Active
Counterparties
CRMs adjust limits and collateral
requirements according to
perceived likelihood of
downgrades or credit events.
www.fitchsolutions.com January 28, 2010 8
10. 5-10 Active
Counterparties
Central Risk Assessments form ‘short-list’ of approved
counterparties; also used for allocating capital
● Assessments made by credit analyst and guided by formal credit policy
– Factors include:
Financial Performance Agency Ratings
Capital Adequacy Sovereign Support
Market Signals Sovereign Risks / Ratings
Industry Standing Management Quality
– Central risk assessments are ‘official’ views of entity credit risk often using
rigid methodologies, particularly among BIS-II compliant firms
● Internal assessments impact P&Ls as enterprise capital requirements
are based on internal-risk-weighted exposures
www.fitchsolutions.com January 28, 2010 9
11. 5-10 Active
Counterparties
Counterparty Risk Manager challenges: Avoiding adverse counterparty
selection & optimize exposure to existing counterparties
● Imperative for CRMs to select counterparties on short-list with least likelihood of future downgrade or credit
event within contract horizon
● CRMs take action on limits, collateral and hedging based on continuous monitoring of counterparties for risk
migration relative to existing exposure
Additional Capital Charge
Future Increase Exposure
Possible forced ‘sale’ for Economic Loss
Downgrade
economic loss
Maintain limits &
collateral Req’s
Reduce limits
Stable
Stable Capital Charge Economic Loss Increase Collateral Req’s
Rating
Aggressively reduce limits
Increase collateral req’s
Hedge to eliminate exposure
Future Reduced Capital Charge
Upgrade Economic Loss
No Future Credit Event Future Credit Event
www.fitchsolutions.com January 28, 2010 10
12. Meeting the challenges for monitoring counterparty credit risk
www.fitchsolutions.com January 28, 2010 11
13. CRMs are dissatisfied with their ability to access and
integrate CP credit risk signals
● CRMs have significant informational needs around current risk levels
and potential for credit risk migration
– Anticipating changes to internal risk assessments
– Full transparency into central risk methodologies and policies, and
access to relevant data:
Fundamental Financials Agency Ratings
Capital Adequacy Sovereign Support
Market Signals Sovereign Risks / Ratings
Industry Standing Management Quality
– Anticipating future credit events
– External credit risk assessments
– Early warning, benchmark and relative risk indicators
– “News flow”
www.fitchsolutions.com January 28, 2010 12
14. CDS market and derived metrics are best early warning
signals available
● Cardinal and ordinal levels observed
in the CDS market have most direct
implications for credit risk managers
● From the CDS market we can derive:
– PDs for individual entities
– Relative risk levels by region/sector
– Historical cycle comparisons
– Sector performance
– Aggregate expectations for future
default rates
www.fitchsolutions.com January 28, 2010 13
15. But Cardinal values are difficult to rationalize
Implied PD for
FI’s = 9.1%
(40% recovery)
Source: FitchSolutions
www.fitchsolutions.com January 28, 2010 14
18. CDS liquidity signals uncertainty
Citigroup Inc. Lehman Brothers Holdings Inc. Royal Bank of Scotland Plc
(Liquidity Score)
12
RBS
percentile
Rk = 72 11
RBS
10 nationalization
RBS
Citigroup
percentile percentile
Rk = 63 9 Rk = 7
8
Lehman
percentile
Rk = 8 7
Citigroup
6 percentile
Citigroup Rk = 2
Lehman bankruptcy
capital injection
5
Jan 07 Jun 07 Nov 07 May 08 Oct 08 Mar 09 Sep 09
Source: Fitch Solutions
www.fitchsolutions.com January 28, 2010 17
19. CDS early warning proved valuable through the crisis
www.fitchsolutions.com January 28, 2010 18
20. A return to uncertainty for Financials, Sovereigns
Liquidity for 25 Most Liquid Financials vs Sovereigns
6
6.5
FS Liquidity Score
7
7.5
8
8.5
9
6/1/07
8/1/07
10/1/07
12/1/07
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Financials Sovereigns
21. Using Fitch Solutions content to monitor Counterparty Credit Risk
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22. A counterparty risk manager requires timely and
accurate data to meet 3 key needs:
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23. Fitch client counterparty risk monitoring practices
● Mid-sized buy-side firm transacts with financial institutions for interest
rate, foreign exchange hedging, and utilizes banks for cash
management
– Short-list determined by screening the Fitch international bank universe for
firms with individual rating of ‘B’ or better, at least $100bn in assets and a
maximum leverage ratio.
– Per internal credit policy, maximum exposure limit scales with the Fitch
individual rating.
– The CRM has the ability to further limit exposure depending on perceived
risk migration. To do so, the CRM monitors the following on his portfolio of
counterparties :
– CDS Implied Ratings (and ‘gap’ with Agency ratings), CDS spot-
spreads and CDS benchmarks
– Fitch Ratings status (outlooks, watches) and research and
announcements
– Financial results
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24. Counterparty Risk Management Post-Lehman
● Increased focus on counterparty selection and credit risk monitoring
● CRMs have taken on additional responsibilities for anticipating future
credit events
● Information challenges persist in anticipating future movements in
credit risk assessments and potential credit events
● Integration of fundamental financial data, market data, agency ratings,
and fundamental research is essential for the contemporary
counterparty risk manager
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25. Fitch Solutions Research, Commentaries and Related Information
● All our research and commentaries can be found on www.fitchsolutions.com and include:
– Risk and Performance Monitor
– Weekly monitor assessing geographical CDS spread movements and market indicators of credit
risk
– Fitch Solutions/Credit 2009 Counterparty Risk Survey
– A write up of the survey we undertook with Credit into Counterparty Risk
– Fitch Solutions' Global CDS Liquidity Scores Commentaries
– Bi-weekly commentaries on the liquidity in the CDS market
– Quantitative Research
• Articles include: “Counterparty Risk for Credit Default Swaps”
● If you’d like to learn more about our products or research please contact the Fitch Solutions team:
– Jonathan.DiGiambattista@fitchsolutions.com – Catherine.Downhill@fitchsolutions.com
– Damiano.Brigo@fitchsolutions.com – Jesse.Waters@fitchsolutions.com
– Diana.Allmendinger@fitchsolutions.com
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26. Fitch Solutions New York London
www.fitchsolutions.com One State Street Plaza 101 Finsbury Pavement
New York, NY 10004 London
+1 212 908 0500 EC2A 1RS
+1 800 75 FITCH +44 20 7417 4222
Fitch Group Fitch Ratings Fitch Solutions Algorithmics
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