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How to implement counterparty credit risk requirements under Basel III: The challenges

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  • Ouamar, Diana

Abstract

To manage counterparty credit risk (CCR), it is fundamental to have in place models that efficiently measure the firm future CCR exposures as a function of the relevant underlying market factors. Basel II has revealed numerous loopholes in accurately managing CCR during the financial crisis. As a result, Basel III addresses several shortcomings and ambiguities present in the previous capital accord such as enhancing capital for counterparty default risks inherent in structured financing transactions and over the counter (OTC) contracts and/or securitisation transactions. Banking regulation is no longer a secondary concern but is now a primary trigger in determining strategic direction and long term positioning of the bank. This time, choosing ‘the minimum compliance’ option for implementing the new CCR requirements, will not be enough to sustain an optimal risk-management structure nor a long-term business growth. Only the implementation of a sound riskmanagement structure can enable any banks to get to that highly developed stage.

Suggested Citation

  • Ouamar, Diana, 2013. "How to implement counterparty credit risk requirements under Basel III: The challenges," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 6(3), pages 327-336, July.
    • Handle: RePEc:aza:rmfi00:y:2013:v:6:i:3:p:327-336
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    More about this item

    Keywords

    counterparty credit risk (CCR); Basel III; risk management; impact assessment; implementation; best practices;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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