Given the complexity of Counterparty Credit Risk exposures, banking organizations should employ a range of risk measurement metrics to promote a comprehensive understanding of CCR and how it changes in varying environments.
PrevioRisk Dashboards enable you to view a complete set of customer data at a glance, allowing to track and analyze the key risk factors and metrics required by the regulator:
- Total counterparty credit risk aggregated on a firm-wide basis and at significant legal entities.
- Counterparties with the largest exposures, along with detail on their exposure amounts.
- Significant risk concentrations.
- Exposures to weak or problem counterparties.
- Growth in exposures over time, capturing quarterly/monthly changes, supplemented where relevant by year-over-year trend data.
- The largest exposures by individual business line and product types.
- Changes in credit terms and relevant triggers, such as net asset value, credit rating, and cross-default.
Our solution offers sufficient flexibility to aggregate exposure at varying levels of granularity, including industries, regions, families of products (e.g. OTC derivatives, SFTs), or other groupings, to identify concentrations advised by regulatory guidelines:
- Concentrations of exposures to individual legal entities, as well as concentrations across affiliated legal entities at the parent entity level, or in the aggregate for all related entities.
- Concentrations of exposures to industries or other obligor groupings.
- Concentrations of exposures to geographic regions or country-specific groupings sensitive to similar macroeconomic shocks.
- Concentrations across counterparties when potential exposure is driven by the same or similar risk factors. For both derivatives and SFTs, banking organizations should understand the risks associated with crowded trades, where close-out risk may be heightened under stressed market conditions.
- Collateral concentrations, including both risk concentrations with a single counterparty, and risks associated with portfolios of counterparts. Banking organizations should consider concentrations of non-cash collateral for all product lines covered by collateral agreements; including collateral that covers a single counterparty exposure and portfolios of counterparties.
- Collateral concentrations involving special purpose entities (SPEs). Collateral concentration risk is particularly important for SPEs, because the collateral typically represents an SPE’s paying capacity.
- The full range of credit risks, which should be considered in combination with CCR to manage concentration risk, including: risks from on- and -off-balance-sheet activities, contractual and non-contractual risks, contingent and non-contingent risks, as well as underwriting and pipeline risks.
PrevioRisk Dashboards facilitate your company’s capacity to measure risk exposure at various levels of aggregation, thus ensuring the following sound CCR aggregation principles:
- For each organizational level of aggregation, all trades should be included.
- While banking organizations are not required to express all forms of risk in a common metric or basis, management should be able to view the various forms of exposures to a given counterparty in a single report and/or system. Specifically, this could include current outstanding exposure across different categories (e.g., current exposure for OTC derivatives and drawn-down lines of commitment for loans). Exposure reports should also include the size of settlement and clearing lines.
- Banking organizations should be consistent in their choice of currency and exchange rate, and take into account the validity and legal enforceability of any netting agreements they may have with a counterparty.
- Management should understand the specific approach used to aggregate exposures for any given risk measure, in order to properly assess the results. For instance, some measures of risk (such as current exposure) may be readily added together, while others (such as potential exposure) are less meaningful when they are added to form an aggregate view of risk.